Rail rake shortage hurts steel delivery of Odisha, Karnataka steel mills

With rail rakes getting diverted to serve thermal coal power plants, domestic steel companies in Odisha and Karnataka are facing outbound rail rake shortage leading to steel markets remaining unserved amid the ongoing peak season.

“There is a more than 50 per cent shortage of (outbound) rail rakes for the last two months now. We used to get about 7 rakes per day but now we get just about 2-3 rakes,” V R Sharma, managing director at Jindal Steel, told Business Standard.

Naveen Jindal-led Jindal Steel & Power has its plant at Angul, state-owned Steel Authority of India (SAIL) at Rourkela and three of Tata Steel plants at Kalinganagar, Jamshedpur and Angul, all located in Odisha.

“Due to rake shortage, delivery of finished goods to mainly northern markets has been severely affected. Markets of Rajasthan, Ludhiana, Punjab are not getting the material on time when it is the demand season now,” Sharma added.

Apart from this, industry officials said inventory build-up at various plant locations is also an issue.

“There are warehouses at the plant as well as customer locations but they have certain capacity. With material not getting lifted on time, storage and evacuation is becoming a problem leading to logistical hurdles,” said sources at Angul steel plant in Odisha.

Queries sent to Tata Steel remained unanswered.

Industry officials said talks with railways are on for the normalisation of rake supply to steel plants.

According to rail ministry officials in the know, the movement of rail rakes in the country is still done at the directives of a High Level Empowered Committee (HLEC) under the chairmanship of cabinet secretary. This committee was set up with the intent of resolving the stress in thermal power plants due to a perceived coal shortage earlier this year. "There seems to be a problem of rake shortage for the non-power sector till last week. There is no such issue right now. The HLEC prioritizes movement of rakes to thermal power plants in a bid to ensure that there is no shortage and a future power crisis is averted," an official aware of the operations told Business Standard.

Though roads look like an alternative to rail transport, industry officials said the switch is not easy.

“Roads cannot replace rails mainly when it comes to bulk evacuation. It (roads) can take only incremental cargo load. Hence a switch is not possible in such a shortage duration,” said the Angul steel plant official.

In Karnataka, too, the situation is no different for steel producers.

“Nearly 70 per cent of our finished goods dispatch is via rail and balance via road. Switching to roads is also a challenge since roads are bad and it also increases the turnaround time leading to increased logistics cost,” said an official with JSW Steel on condition of anonymity.

Sajjan Jindal-led JSW Steel plant is situated in Vijaynagar in Karnataka.

Amid the rising logistical cost, industry officials are of the view that continued shortage of rail rakes could lead to increase in steel prices in coming months.

“Currently, we are focusing on bringing back rail rake supplies but if the shortage continues, we will have to review prices of the commodity,” said sources close to the development.

Steel prices have declined by about Rs 2,500 per tonne in the last three months with hot-rolled coil prices currently hovering around Rs 66,000 per tonne.