India: Induction based mills stare at shutdown on oxygen cut-off

As the demand for liquid medical oxygen (LMO) mounts in the battle against the devastating second wave of Covid-19, court orders, circulars from district collectors and verbal urgings from state officials are seeking augmentation of supply of this life-saving gas from the iron and steel industry. The ways and means include diversion of industrial oxygen to hospitals as LMO, mill closures and production curbs on secondary sector mills and hand-over of empty cylinders for O2 refills.

While the large integrated plants have their own oxygen-making facilities, the smaller mills generally buy from gas manufacturers for their metal cutting and casting purposes. In a business-as-usual scenario, gas manufacturers supply 60% towards industrial use and the balance 40% to hospitals. However, staring at an out-of-control pandemic, they are diverting 80% of their supplies to hospitals at present but feel the balance 20% will also soon go to Covid patients.

Consequently, the induction furnaces, scrap yards and all secondary sector units linked to the iron and steel industry and involved in metal cutting are staring at a short-term shutdown. One large eastern India-based TMT player said, they were looking at a scenario similar to the one experienced during the two-month lockdown last year.

SteelMint spoke to a cross-section of small units across India. Some reported up to 50% decline in production, while few are running at full capacity up till now. The key takeaways:

Central Region

Raipur: The standalone furnaces, rolling mills and hot charging plants are closing down operations depending on stock positions of oxygen. In the next 3-4 days, mostly all plants will shut down except those which have their own oxygen plants (about 10). The current production loss is about 50%. However, sponge iron manufacturers will continue.

One of the leading Raipur-based TMT producers said: "We don't yet have clarity. But if this diversion persists then some of the induction furnace units may have to shut down for some time. IFs don't have captive oxygen plants but buy from industrial gas manufacturers. But savings lives, not supplying to IFs, will have to be a priority."

Raigarh: Most of the plants have 10-15 days of oxygen stock left. However, currently, the production utilisation is about 60-70%.

A Raigarh-based gas manufacturer with a 1,200-tonnes-per-day plant, said there are 15-odd oxygen plants in Chhattisgarh and that 20% of the production is going to the steel plants and 80% to Chhattisgarh's hospitals. "But that 20% will also get diverted towards medical usage and smaller steel units will eventually stop production," he said, adding that there is no cylinder shortage in Raigarh since Chhattisgarhi is dotted with 12-15 O2 plants.

"States like Chhattisgarh, Odisha and West Bengal are not facing a shortage and, hence, supplying to other states, especially the Delhi region which lacks enough plants and is also requiring a higher level of oxygen because of increased cases," he observed.

Eastern Region

Odisha: Plants are running at 90-100% capacity as oxygen is easily available so far. A large eastern India-based TMT manufacturer that buys liquid oxygen from INOX Air, said its Odisha plant has not shut down yet but will in a few days.

"We need oxygen for cutting and casting in our rolling mills. There was no notification but we got a call from the district collector, seeking empty cylinders. We provided as required from the Odisha plant. We need to save lives first. In Kolkata too there is not much of a shortage because several oxygen plants are located in the region. So cylinders are being sent from Odisha and Bengal to other states where the shortage is more acute," he informed.

West Bengal: Most of the plants are still running at a capacity utilisation of 60-80%. Mills, which have their own oxygen plants will remain active and sponge iron manufacturers will continue, it is learnt.

Southern Region

Hyderabad: Most of the furnaces/rolling mills are shut, with few running till their oxygen stock runs out, suffering around 30% output loss at present. These plants are withholding raw materials purchases, due to short supply of oxygen. Around 8-10 structural mills have also stopped production.

Chennai: Production level has been slightly affected but is being maintained at 60-70% as few mills (hot charging and standalone) have a week's stock of oxygen while, as per unconfirmed sources, a few mills are still sourcing it.

As per a Chennai-base scrap trader, scrap yards are heavily dependent on oxygen for cutting of ferrous scrap. "We are managing as of now with around 15 days' stock of oxygen but if the diversion continues we may have to shut down," he indicated.

Western Region

Jalna & Mumbai: All the manufacturers are somehow arranging oxygen from nearby markets and states like Gujarat and Odisha. The current production level is 75-80%. Notably, none of the mills here have their own oxygen plants.

A 1,500-tonnes per day TMT producer from Jalna and who buys liquid oxygen from a local gas plant, said his mill has an oxygen stock of five days and he is bracing for a shut-down. "The situation is bad. No industrial supply of oxygen is allowed now by the district collector's order," he said, adding that production will be badly hit.

Gujarat: Production is at 50-60% specifically for mills based in Bhavnagar on account of the huge shortage of oxygen at Alang, the major source of raw material (melting scrap),which is pushing up scrap costing. Lack of demand for finished steel is forcing the IFs and rolling mills to reduce production.

Northern Region

Punjab: The mills, which are mostly concentrated in the Ludhiana and Mandi Gobindgarh areas, are currently operational but soon may need to cut production or shut down as oxygen supply has been restricted by the state government since April 24. Chief Minister Amarinder Singh ordered closure of operations at the state's iron and steel units. Currently, the mills are not experiencing production loss. However, by weekend they expect a sharp fall in output. No mill here has its own O2 plant.

Uttar Pradesh: Most rolling mills are running at 60% capacity in Muzaffarnagar and Ghaziabad but till their O2 and raw material stocks run out or till the weekend (whichever comes first). As of now, raw material purchase is on hold due to the prevailing uncertainty. With the state government ordering production and supply of oxygen only to the medical sector, mill owners are uncertain about their production volumes in the coming days.

"Those states which have enough gas plants need to send to states experiencing shortage. Until that pressure eases, the iron and steel segment will have to cut down on production," said a mill owner.

Lockdown in many states is impacting trade and demand for finished steel, especially in the retail segment. "Finished steel demand doesn't exist at an appropriate level and it could be another factor to consider for further production curbs apart from lack of oxygen supply," said a source.

~Madhumita Mookerji