FOCUS: New wave of coronavirus threatens India’s booming steel industry as mills divert oxygen

As the current surge in coronavirus cases in India takes hold, Fastmarkets looks at the possibility that the steel industry could lose its impressive growth.

New cases of coronavirus in India have surpassed 350,000 per day and steel plants in the country have been supplying liquid medical oxygen (LMO) to hospitals because of the ongoing shortage of available oxygen.

Diverting supplies of oxygen away from the plants could result in reduced steel output.

Major steel companies in India, such as Sail, RINL-Vizag Steel, ArcelorMittal Nippon, JSW, JSPL and Tata Steel have all either offered or have already provided oxygen supplies.

Ministry of Steel minister Dharmendra Pradhan has held numerous meetings with domestic steel plants to arrange the supply of oxygen.

Steel plants had been pressed into action to meet the call of the nation, the ministry said. All capacities of steel plants, including the production of liquid nitrogen and argon, have been redirected towards production and supply of medical oxygen.

In a statement on its website, the Indian government said that steel plants require gaseous oxygen, primarily for steelmaking and for oxygen enrichment in blast furnaces, apart from some general purposes such as lancing and gas cutting, hence captive oxygen plants in integrated steel plants are designed to primarily produce gaseous products of oxygen, nitrogen and argon.

“At the moment, one of the main concerns is lack of availability of industrial oxygen for steel mills as everything is being diverted for medical use. This is hopefully a short term issue,” the vice president of the Material Recycling Association of India (MRAI), Zain Nathani said.

On social media, Sail said it had provided more than 35,000 tonnes of LMO for Covid relief from its various plants since the start of the pandemic, with 1,425 tonnes provided since April this year.

Additional social media commentary from the Ministry of Steel said that 29 oxygen plants located in public and private sector steel plants had produced 3,474 tonnes of LMO on Sunday, up from 1,500 tonnes per day previously.

JSPL said the company had more than 500 tonnes of liquid oxygen stock readily available at its Angul plant and was waiting for delivery tankers to arrive.

“We can compromise steel production for a while to supply oxygen to the government to save precious lives. Our priority is people first,” JSPL managing director VR Sharma said.

A Tata Steel spokesperson said that “these are unprecedented times” and the situation on the ground was evolving rapidly.

“We are supplying over 500-600 tons of LMO daily to various state governments and hospitals. Currently, we are operating as per our plan. We are working closely with our customers, suppliers and various government agencies to mitigate the impact as far as possible. We are continuously monitoring the situation and stand ready to review our decisions based on the developments on the ground,” the spokesperson said.

The Indian steel industry has experienced a significant revival in domestic demand since emerging from the first lockdown last year.

During the March 2020 lockdown, many of the country’s largest steelmakers switched to exports before domestic demand revived in the summer and autumn.

“Steel demand in India is strong because the economy has shown robust growth in the past two quarters. The surge in Covid-19 cases is a concern if the situation doesn’t plateau out by May-June. As a good hedge to the domestic sector, the large steel mills are also exporting a lot of semis due to high prices and increased demand from China and South East Asia,” Nathani said.

Many of India’s top steel makers have reported their best ever performance for production or sales in their most recent results.

State-owned Sail reported its highest-ever quarterly production and best-ever annual sales in its full-year results in April, while RINL reported its second-highest turnover since the company’s inception in its latest full-year results.

In the same month, JSW reported its best quarterly earnings and JSPL announced its highest-ever steel production volumes in its most recent quarterly figures.

MRAI told Fastmarkets that India’s domestic steel production was likely to take some kind of hit due to the ongoing second wave of Covid-19 and that it would align itself to the consumption patterns as steelmakers divert oxygen from their plants to meet the urgent medical needs in various states across the country.

Falling demand for finished steel products was evident in the recent drop in hot rolled coil export prices, which dipped to $930-960 per tonne from $920-1,025 per tonne a week earlier.

“Steel production has already gone down, and the government is not allowing oxygen supplies to steel mills, and without oxygen it’s difficult for a plant to run. Even normal furnaces need some gas and charge. It’s difficult in these circumstances to run a factory. Manpower is also becoming a bit of an issue, laborers have started going back to home towns, it might become a severe issue if it doesn’t come under control,” a scrap seller said.

However, the Indian Steel Association (ISA) disagreed, telling Fastmarkets that the diversion of oxygen from steel plants would have minimal effect on steel production because production at various oxygen units of the steel plants has been ramped up to serve the very specific purpose of meeting the shortfall in medical-grade oxygen resulting from the surge in Covid-19 cases.

Many market participants are now apprehensive about the lockdown measures that might be brought in to tackle the current outbreak – although it is expected that steel plants will be allowed to continue to operate and that lessons have been learned.

ISA said that that the only matter of concern would be if the Indian government chose to impose a national lockdown, but Prime Minister Narendra Modi has sent a clear message that such a move should be the last resort.

“The strategy to curb the pandemic, thus far, has been to focus on local restrictions and containment zones. Hence, we do not expect steel production to take a hit. Demand for steel in the domestic market will falter in the short term, but eventually even out in the mid term. Steel production is expected to remain normal,” a spokesperson said.

There were also concerns over manpower and labor, after many migrant workers left the country to return home during the first lockdown, with reports of a similar exodus from some states this time around.

“A labor shortage is not expected unless the situation worsens in the coming months. Most industries are now more adept and suited to dealing with the lockdown conditions and norms. So the many issues faced in March and April 2020 are not expected to be repeated this time around,” Nathani added.

Lower demand for imported scrap will result in material being offered to other markets, including Pakistan.

One trader told Fastmarkets that the oxygen situation will mostly have an impact on basic oxygen furnace (BOF) production, where scrap usage is limited to around 20% and comes from local sources.

Any further lockdowns will also slow down activity in the finished product markets and, in turn, reduce the requirement for imported scrap.

“Dubai will be adversely [affected], which will mean more material being offered from the Middle East to Pakistan. I am hearing some cargos are already being diverted,” the trader said.

Shredded scrap prices in India tumbled by $44 per tonne one week after the countrywide lockdown was announced on March 24, which caused a pause in scrap trading, as well as automotive stoppages and congestion at ports.

Fastmarkets’ weekly steel scrap shredded, index, import, cfr Nhava Sheva, India was calculated at $456.50 per tonne on March 23.

“People don’t want to take chance. If you import scrap material, you don’t know how the market will be when it arrives or if factories will even be open,” the seller said.