NEW DELHI | BHUBANESHWAR: Two of the country's top stainless steel producers, who together account for more than half of India's market for the alloy, are considering a cut in production due to high prices of the main raw material, chrome ore, bought from the only supplier Orissa Mining Corp.

The costly ore, which is being sold at a 33% premium to the international benchmark, is also used by smaller ferro chrome units who have found it unviable to buy at such a price and have shut shop, say industry executives.

JSL Stainless, the largest stainless steel producer in the country, is operating only three of its five furnaces which are about 50% of its installed capacity. Finance director Arvind Parakh blames the 12% drop in net profits in the previous fiscal quarter on the "unusually high chrome ore prices". Profit fell despite an increase in stainless steel volume, he added.

Similarly, Visa Steel expects production at its 50,000-tonne-per-annum plant to be down by 40-50% this quarter. "We are not asking OMC to subsidise us, but only that it consider the plight of buyers who account for 80% of its volumes and adopt a more fair pricing mechanism," said managing director Vishal Agarwal.

Stainless steel is a widely used consumer goods item and has applications in home appliances and is now also being used in construction and transportation. Ferro chrome is an intermediary that is used in the manufacture of special steel and stainless steel.

Most of the companies operate from Orissa which accounts for 95% of the country's known chrome ore deposits of 213 million tonnes, and accounts for nearly all of the country's production with less than 1% coming from Karnataka. Companies such as Rohit Ferro Tech, Navbharat Ventures and Aarti Steel are also based out of Orissa.

The steep charges are also impacting ferrochrome units. More than 300 out of 350 steel units, which were built at a total investment of Rs 2 lakh crore, have already shut down after the state government did not facilitate making raw materials available at an affordable cost.

The Orissa steel industry will shortly move the Orissa High Court to seek its intervention to direct the state to ensure ore linkage to units struggling to survive. "We are now forced to knock the door of the court as the state government has failed to address our issue for two years.

Lakhs of employees of these units and their family members are now without any livelihood as 90% of the industrial furnace and 70% of the sponge iron units are no more operational. The remaining few units are operating at 20% capacity only and virtually on the verge of closure," said president of the All Orissa Steel Federation P L Kandoi.

Chrome ore sold by OMC to large producers costs Rs 11,500 to Rs 12,000 a tonne. Comparatively, the international price of the ore ranges between Rs 7,000 and Rs 8,000 a tonne.

"Currently a tendering process that is reflective of a fair market price is being practiced. We are looking at quantity based on which, bidding could be done to bring down the cost. But we can't give any differential treatment to state-based units," said steel and mines secretary and OMC chairman Manoj Ahuja.