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Rising gas prices hurting margins of Essar Steel, Torrent Power

Capacity utilisation to remain low on bullish gas price outlook

Aditi Divekar & Shreya Jai  |  Mumbai 


The uptick in global natural coupled with a bullish outlook for the commodity is worrying select
domestic and gas-based power units as capacity utilisation is dropping, resulting in bleak margin visibility going ahead. 

In the domestic sector, where most producers are running at 100 per cent capacity utilisation, the Ruias-owned is witnessing dwindling utilisation levels amid rising The company has a 10 million tonne capacity, of which 70 per cent is gas-based. The company relies largely on imported gas to meet its requirement. 

The landed cost of gas for has risen to $10.16 per mmbtu in November from $7.4 per mmbtu in June this year.

"The three dollar rise in translates into an additional cost of Rs 2,500 per tonne of making. This makes less competitive in the domestic market,” a source close to the development told Business Standard.

While company officials declined to comment, they confirmed that the volatility in is a challenge for

All of Essar Steel's peers such as Tata Steel, Sajjan Jindal-led JSW Steel, Jindal & Power and Authority of India (SAIL) use coking coal as their feedstock fuel to run capacities. 

Globally, natural have been rising due to upcoming winter demand amid 5.5 per cent drop in US natural gas inventories over last year. Experts are of the view that after exceptionally low average in 2015 and 2016, average annual prices are likely to rise both in 2017 as well as 2018. 

The gas price in US market is currently at $3.09 per mmbtu and is up almost 20 per cent from $2.56 per mmbtu in February after having hit a peak of $3.44 per mmbtu in May this year.

Apart from steel, around 25,000 MW of gas-based plants are stranded due to the non-availability of gas at reasonable prices. 

Currently,  state-owned that has close to 2,400 MW of gas-based capacity is running at half its capacity due to a shortage in gas supply.  Privately owned gas units, on the other hand, are running at plant load factor of less than 50 per cent.

Among the listed companies, also relies on imported gas to run its plant in Gujarat. According to officials, gas is sourced from and any price change is passed on the The official said GAIL's supply does not specify the amount of imported gas.

According to a Care Ratings report, gas-based thermal power plants that constitute approximately 10 per cent of the total installed thermal power capacity would continue to witness lower capacity utilisation in the range of 22-25 per cent due to rising global

Of the 24,150 MW of gas grid-connected capacity in the country, 14,305 MW is gas-starved at present. On this front, an investment of around Rs 60,000 crore is at the threshold of becoming a non-performing asset (NPA). The remaining capacity of around 9,845 MW, involving an investment of around Rs 40,000 crore, is working at a sub-optimal level, based on the limited quantity of domestic gas in India.

First Published: Thu, November 16 2017. 13:57 IST