Too Big to Fail

The phenomenal rise of Bhutan’s ferro silicon sector from a modest beginning in 1990 to a Nu 17.7 billion export powerhouse in 2024 was largely driven by international market cycles, cheap hydro power, and policy support.

But today, the country stands at a crossroads with nine new ferro factories coming up in Norbugang, with a Nu 13 to 15 billion in investment, and billions in loans, the industry may be on the verge of becoming too big to fail.

On one hand, this ferro rush is promising. If all goes well, it could transform Samtse into Bhutan’s industrial hub, generating thousands of jobs, increasing tax revenue, and injecting billions in hard currency. The government’s investment in grid infrastructure and industrial estate facilities shows foresight. Investors point to India’s booming steel demand, set to double by 2030, and predicted rise in global demand as the foundation for their optimism.

But beneath this promise lies systemic risk. Prices of ferro silicon are now hovering around Nu 86,800 per ton which is below the production cost. For newer plants burdened with loan repayments and higher infrastructure costs, the break-even point is even higher. Global overcapacity, weak price discipline among Bhutanese players, and reliance on seasonal Indian demand all amplify the danger of a race to the bottom.

The reality is that the financial exposure of Bhutanese banks, already at Nu 6.2 billion and rising, is deeply tied to the success of these plants. If prices don’t recover and demand doesn’t absorb the new capacity, non-performing loans may rise, echoing past missteps in the hotel sector.

Yet, this is not a call for panic, but for prudence and coordinated policy. Bhutan’s ferro industry needs better internal cooperation, potential export diversification beyond India, and smarter power import strategies during lean months. Long-term power purchase agreements and efficiency upgrades with new technology must replace overreliance on short-term margins.

This moment demands a national industrial strategy, not just uncoordinated ambition. Bhutan cannot afford for its biggest export sector to grow on shaky foundations. If we get this right, ferro can remain the crown jewel of Bhutan’s exports. If we don’t, it could become an anchor pulling the economy down.

Look twice before you leap.
Charlotte Bronte