India eases oxygen supplies to steel sector

Indian steel producers are to revive production with the government realigning oxygen supplies from the medical sector, with the easing of the country's Covid-19 crisis, to certain industrial sectors including the steel industry.

India's ministry of commerce issued a directive permitting oxygen supplies to continuous process industries/plants such as furnaces, refineries, steel, aluminium and copper processing plants, subject to ensuring adequate supplies for medical purposes. The directive specifies quantities of oxygen permitted for various industrial sectors requiring continuous power supplies including all infrastructure projects and plants, medium and small enterprises, as well as exporters, on a temporary basis. The ministry order did not specify a timeline.

The order will help to revive downstream activity such as fabrication, engineering goods and component making that was partially or completely halted, in turn reviving steel demand, said a Mumbai-based research analyst. The diversion of oxygen supplies by steel producers for medical purposes is likely to reduce steel output by 5-10pc in May, the analyst said.

JSW Steel announced a 5pc month-on-month drop in its April crude steel output, citing the prioritising of its oxygen supplies for medical purposes as a factor.

Capacity utilisation rates across the country fell to 70pc in April from 88pc in March, according to a report by US bank Morgan Stanley. Crude steel output by blast furnace operators in April fell by 15pc from the previous month to 4.68mn t, while output from the secondary steel-producing sector, or non-blast furnace producers, dropped by 28pc from March to 3.28mn t because of limited oxygen supplies and labour constraints.

While steel producers may have to continue supplying oxygen for medical purposes, the quantities may be reduced with the fall in Covid-19 cases in the country, market participants said.

India's steel output will likely drop by 20pc during April-June compared with the 29.58mn t produced during the previous quarter, according to analysts' forecasts, because of lockdown curbs restricting movement of people, labour unavailability and a lack of oxygen.

By Charlotte Rao