O2 unavailability deepens steel output fall as secondary players shut mills

RP Steel and Arora Steel secondary speciality steel players impacted by the unavailability of oxygen

With the government banning the use of liquid oxygen for industrial or non-medical purposes, the domestic secondary steel sector has taken a big hit.

The secondary steel sector contributes nearly 50 per cent to the total domestic production annually.

“We have shut our plant and are losing 20,000 tonnes of steel every month in production due to non-availability of oxygen. We do not know when we will be able to restart the unit, as there is uncertainty,” R K Goyal, managing director of Kalyani Steels, told Business Standard.
 

The BSE-listed company is in the business of special steels, with its manufacturing facility located in Hospet, Karnataka.

“There has been no steel production in the last 18-19 days due to non-availability of oxygen. Until then we were managing with in-house supp­ly inventory that we had. Now, the plant is shut entirely,” an official at Mahindra Sanyo Spe­cial Steel said on condition of anonymity. The company runs a 200,000-tonne steel plant at Raigad in Maharashtra.

RP Steel and Arora Steel are among the other secondary speciality steel players impacted by the unavailability of oxygen.

Oxygen is used in steelmaking and is blown into a bath of molten blast-furnace of iron and scrap to remove impurities such as carbon, silicon, phosphorus, and manganese.

According to the Joint Plant Committee data, India’s do­mestic steel production in the first 11 months of FY21 stood at 85.6 million tonnes, down 10.3 per cent compared to the same period last year. Consumption was also down by 9.9 per cent to 84.69 million tonne.

Integrated steel players, on the other hand, expect their steel production to fall 8 to 10 per cent in the current financial year.

Tata Steel, Naveen Jindal-led Jindal Steel & Power, Sajjan Jindal-led JSW Steel, state-owned Steel Authority of India (SAIL), and AM/NS India are among the integrated primary steel producers that have already diverted their captive oxygen for medical use.

Secondary steel producers make steel using electric arc furnace or induction arc furnace where steel scrap or sponge iron is used as feedstock for the units. Whereas primary steel producers have blast furnaces installed where iron ore is the key feedstock.

Industry officials were of the view that not all secondary producers were impacted due to the oxygen ban.

According to P K Sen, secretary general of Institute for Steel Development & Growth, secondary produ­cers that use induction arc furnaces (IAFs) to make steel do not require oxygen as the furnace does not produce speciality steel. “It only produces construction material such as TMT bars. Due to this, those players will remain unaffected,” he added.

The secondary steel sector is unorganised and scattered, so the ratio of those running electric arc furnaces (EACs) and IAFs is unavailable.

Despite domestic steel production taking a hit, the supply side is not likely to be much impacted due to weak demand in the market. “Demand has come down. So supply not being there is not hurting the market at this juncture,” said Goyal of Kalyani Steels.

Steel consumers are also hoping for a price correction in the coming months due to lower demand. Vimal Kejriwal, managing director and chief executive officer at KEC Inte­rnational, a Mumbai-based capital goods company, said, “Prices of steel continue to remain high, but since there is enough supply in the market amid weak demand, we are expecting a price correction, which can help us compensate for paying higher prices.”

Two types of secondary players

With Electric Arc Furnace (EAF)
 

Speciality steel products, like wire rod and automotive steel,  are made by EAF secondary producers where oxygen is needed to remove impurities 

With Induction Arc Furnace (IAF)
 

Construction steel, like TMT bars, is made by IAF secondary producers