About Refractories:
Refractories are products used for high temperature insulation and erosion/corrosion and are made mainly from non-metallic minerals. They are so processed that they become resistant to the corrosive and erosive action of hot gases, liquids and solids at high temperatures, in various types of kilns and furnaces. They are the absolutely essential component in any heat treatment process.
The consumption pattern of refractories is as follows:
Iron & Steel industry (approx. 75%)
Cement industry (approx 11%)
Copper, aluminium & other metallurgical units (approx. 10%)
Glass (4%)
Refractory comes in various types and shapes like high alumina, basic, silica, bricks, monolithics, and special products. The main raw materials are bauxite, various types of aluminas, magnesite, fireclay, sillimanite sand, quartzite, dolomite etc. Bauxite, alumina magnesite and various other key raw materials are imported as India lacks these raw materials.
Nowadays, refractory industry is not just for supply of shaped and unshaped products, but also for Total Refractory Solutions provider to the steel makers. With the onset of Total Refractories Management (as initially suggested by Mckenzie to SAIL), refractory makers are expected to take care of design, installation and maintenance of various types of refractories. Today it is a comprehensive knowledge driven industry requiring sophisticated infrastructural support as well as trained human resource.
About IRMA:
Established in 1958, Indian Refractory Makers Association (IRMA) is the national body of Indian refractory makers having more than 80 manufacturing units as its members. All the large scale units & medium scale units of the country are members of IRMA. IRMA provides a wide range of advisory and representational services to its members. More details about the organization may be found at www.irmaindia.org
Problems Faced By Refractory Makers:
Lack of availability of indigenous raw materials, wide fluctuation in the prices of imported raw materials (mostly from China)
Low return on investment due to low realization on products and services offered
Lack of capacity utilization (approx. 55-60%)
Competition from cheaper imported products, sometimes at the cost of compromising quality
The following table illustrates the steady penetration of Indian market by imported refractories:
Figures in Rs. Crores
2007-08 2008-09 2009-10
Indian Refractories Consumption Indian Refractories Consumption Indian Refractories Consumption
Total Imports Total Imports Total Imports
3625 983 3640 1421 4480 1277
While this problem is being felt by other countries as well, many have tried to address it by slapping anti-dumping duty. USA has slapped a 212% anti-dumping duty on Chinese mag-carbon, while the rate is 40% in European Union.
The meagre return on investment of a refractory maker can be gauged by the fact that while the EBIDTA of a steel maker hovers between 25-35% on an average, that of a refractory maker is only 12-18%.
The margins of the refractory makers are always squeezed which has a telling effect on its profitability and overall sustenance.
Low return on investment has meant:
Lower investment in R&D (0.3% of the total turnover for larger companies, none for medium & small scale, in advanced countries, the standard is 3-5%)
Lower investment in Training (0.1% of the total turnover for larger companies, none for medium & small scale)
Lower investment in Infrastructure/automation/testing & QC facilities (especially the SME sector which has lagged behind)
This effectively means gradual decay of the industry in the face of tough global completion. India is not self-sufficient in raw materials and substantial R&D investment is needed to develop value added raw materials from indigenous source. China is presently pursuing a policy of value addition in its own soil and discouraging export of raw materials. Earlier there were 187 magnesite mines in Liaoning region, which has now come down to 80 - 100 mines. For bauxite, all illegal mining have been stopped and no new permit is being issued.
The Indian refractory manufacturers are squeezed between the raw material suppliers and steel makers. The negotiating power of refractories makers is very poor, mainly due to its size, as it is catering to an industry far bigger in size, primarily steel. Raw material prices are on fire. But unlike steel makers, it is difficult for refractory manufacturers to pass on the burden of increasing raw material prices. Margins are always under severe pressure.
Specific consumption of refractories has gone down from 30 kg per tonne of steel about 10-12 years ago to 12-13 kg on an average for the steel industry as a whole and as low as 7-8 kg in the case of some more efficient steel units. This is because of upgraded technology for which demand for high quality product is rising.
The following table portrays the wide fluctuation in prices of raw materials:-
Latest Sept'09 % increase
Dead Burnt Magnesite 35000 15000 133%
Fused Magnesia 46500 30000 55%
Sea Water Magnesia 34000 24900 37%
Rotary Kiln Bauxite 30000 26300 14%
Brown Fused Alumina 37000 32000 16%
Graphite 67000 32000 109%
Zirconia 325000 222000 46%
Zirconia Mullite 70000 41000 71%
Resin 118000 87000 36%
Apart from raw material price hike, there has been significant increase in price of fuel which is given below:
Apr’09 Apr’10 Jan’10
LPG
31400/T 45900/T 56900/T
High Speed Diesel
33500/KL 37800/KL 41200/KL
Costs of power, other fuels and transportation have also increased across the board. Raw Material and Energy together cater to about 60% of the revenue and their price fluctuation have put the industry in a tight spot.
Refractory makers are forced to absorb the additional cost without passing it on to the users because of latter’s indifference to the price rise issue. Worse still, while the refractory makers have to pay upfront for raw materials, labour, energy, overheads etc, in most of the cases (especially for consumables) they are getting deferred payment i.e. after the usage of the products. This is effectively blocking their working capital for which the refractory makers are forced to compromise on their quality. This eventually hurts the steel industry as well considering the opportunity cost of steel making is very high nowadays.
As mentioned earlier, refractory is the essential component for running any heat generating process like manufacturing of iron & steel, aluminium, copper, cement, glass etc, the decay of the domestic industry effectively means India would be at the mercy of foreign manufacturers and traders for the growth of its core sector.
Lastly, the business of refractory industry is basically that of value addition of raw materials in Indian soil thereby generating livelihoods for thousands. Yet the refractory raw materials as well as finished products attract the same duty of 5% for which the domestic producers cannot operate in a level playing field.
Key Issues Faced by the Refractory Makers:
Adverse impact on the industry due to rise in input cost
Not able to pass on the cost to the users
Impact of cheap/unreliable imports
Non-availability of indigenous raw materials and major dependence on imports
Increase in working capital requirements
Development of indigenous raw materials (need to be linked with the initiatives of national institutes)
Refractories industry, handicapped by its low capacity utilization is always in the struggling mode due to the bargaining power of suppliers and that of customers. Unless the steel industry who is dependent on the refractory industry for its core manufacturing process, understand that its fortunes are tied with the refractory industry, it is going to be a lose- lose situation for both of them and ultimately the Indian economy.
Refractories are products used for high temperature insulation and erosion/corrosion and are made mainly from non-metallic minerals. They are so processed that they become resistant to the corrosive and erosive action of hot gases, liquids and solids at high temperatures, in various types of kilns and furnaces. They are the absolutely essential component in any heat treatment process.
The consumption pattern of refractories is as follows:
Iron & Steel industry (approx. 75%)
Cement industry (approx 11%)
Copper, aluminium & other metallurgical units (approx. 10%)
Glass (4%)
Refractory comes in various types and shapes like high alumina, basic, silica, bricks, monolithics, and special products. The main raw materials are bauxite, various types of aluminas, magnesite, fireclay, sillimanite sand, quartzite, dolomite etc. Bauxite, alumina magnesite and various other key raw materials are imported as India lacks these raw materials.
Nowadays, refractory industry is not just for supply of shaped and unshaped products, but also for Total Refractory Solutions provider to the steel makers. With the onset of Total Refractories Management (as initially suggested by Mckenzie to SAIL), refractory makers are expected to take care of design, installation and maintenance of various types of refractories. Today it is a comprehensive knowledge driven industry requiring sophisticated infrastructural support as well as trained human resource.
About IRMA:
Established in 1958, Indian Refractory Makers Association (IRMA) is the national body of Indian refractory makers having more than 80 manufacturing units as its members. All the large scale units & medium scale units of the country are members of IRMA. IRMA provides a wide range of advisory and representational services to its members. More details about the organization may be found at www.irmaindia.org
Problems Faced By Refractory Makers:
Lack of availability of indigenous raw materials, wide fluctuation in the prices of imported raw materials (mostly from China)
Low return on investment due to low realization on products and services offered
Lack of capacity utilization (approx. 55-60%)
Competition from cheaper imported products, sometimes at the cost of compromising quality
The following table illustrates the steady penetration of Indian market by imported refractories:
Figures in Rs. Crores
2007-08 2008-09 2009-10
Indian Refractories Consumption Indian Refractories Consumption Indian Refractories Consumption
Total Imports Total Imports Total Imports
3625 983 3640 1421 4480 1277
While this problem is being felt by other countries as well, many have tried to address it by slapping anti-dumping duty. USA has slapped a 212% anti-dumping duty on Chinese mag-carbon, while the rate is 40% in European Union.
The meagre return on investment of a refractory maker can be gauged by the fact that while the EBIDTA of a steel maker hovers between 25-35% on an average, that of a refractory maker is only 12-18%.
The margins of the refractory makers are always squeezed which has a telling effect on its profitability and overall sustenance.
Low return on investment has meant:
Lower investment in R&D (0.3% of the total turnover for larger companies, none for medium & small scale, in advanced countries, the standard is 3-5%)
Lower investment in Training (0.1% of the total turnover for larger companies, none for medium & small scale)
Lower investment in Infrastructure/automation/testing & QC facilities (especially the SME sector which has lagged behind)
This effectively means gradual decay of the industry in the face of tough global completion. India is not self-sufficient in raw materials and substantial R&D investment is needed to develop value added raw materials from indigenous source. China is presently pursuing a policy of value addition in its own soil and discouraging export of raw materials. Earlier there were 187 magnesite mines in Liaoning region, which has now come down to 80 - 100 mines. For bauxite, all illegal mining have been stopped and no new permit is being issued.
The Indian refractory manufacturers are squeezed between the raw material suppliers and steel makers. The negotiating power of refractories makers is very poor, mainly due to its size, as it is catering to an industry far bigger in size, primarily steel. Raw material prices are on fire. But unlike steel makers, it is difficult for refractory manufacturers to pass on the burden of increasing raw material prices. Margins are always under severe pressure.
Specific consumption of refractories has gone down from 30 kg per tonne of steel about 10-12 years ago to 12-13 kg on an average for the steel industry as a whole and as low as 7-8 kg in the case of some more efficient steel units. This is because of upgraded technology for which demand for high quality product is rising.
The following table portrays the wide fluctuation in prices of raw materials:-
Latest Sept'09 % increase
Dead Burnt Magnesite 35000 15000 133%
Fused Magnesia 46500 30000 55%
Sea Water Magnesia 34000 24900 37%
Rotary Kiln Bauxite 30000 26300 14%
Brown Fused Alumina 37000 32000 16%
Graphite 67000 32000 109%
Zirconia 325000 222000 46%
Zirconia Mullite 70000 41000 71%
Resin 118000 87000 36%
Apart from raw material price hike, there has been significant increase in price of fuel which is given below:
Apr’09 Apr’10 Jan’10
LPG
31400/T 45900/T 56900/T
High Speed Diesel
33500/KL 37800/KL 41200/KL
Costs of power, other fuels and transportation have also increased across the board. Raw Material and Energy together cater to about 60% of the revenue and their price fluctuation have put the industry in a tight spot.
Refractory makers are forced to absorb the additional cost without passing it on to the users because of latter’s indifference to the price rise issue. Worse still, while the refractory makers have to pay upfront for raw materials, labour, energy, overheads etc, in most of the cases (especially for consumables) they are getting deferred payment i.e. after the usage of the products. This is effectively blocking their working capital for which the refractory makers are forced to compromise on their quality. This eventually hurts the steel industry as well considering the opportunity cost of steel making is very high nowadays.
As mentioned earlier, refractory is the essential component for running any heat generating process like manufacturing of iron & steel, aluminium, copper, cement, glass etc, the decay of the domestic industry effectively means India would be at the mercy of foreign manufacturers and traders for the growth of its core sector.
Lastly, the business of refractory industry is basically that of value addition of raw materials in Indian soil thereby generating livelihoods for thousands. Yet the refractory raw materials as well as finished products attract the same duty of 5% for which the domestic producers cannot operate in a level playing field.
Key Issues Faced by the Refractory Makers:
Adverse impact on the industry due to rise in input cost
Not able to pass on the cost to the users
Impact of cheap/unreliable imports
Non-availability of indigenous raw materials and major dependence on imports
Increase in working capital requirements
Development of indigenous raw materials (need to be linked with the initiatives of national institutes)
Refractories industry, handicapped by its low capacity utilization is always in the struggling mode due to the bargaining power of suppliers and that of customers. Unless the steel industry who is dependent on the refractory industry for its core manufacturing process, understand that its fortunes are tied with the refractory industry, it is going to be a lose- lose situation for both of them and ultimately the Indian economy.
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