India Finish Steel Production FY20 (April-February)

By MADHUMITA MOOKERJI

The 21-day lockdown on account of Covid-19 has taken a sizeable toll on India’s steel production, with a total mere 30% of capacity utilization under way at present, SteelMint learnt from sources in the India Steel Association (ISA). The sources indicated that, this 30% was being seen as a best- case scenario. In a pessimistic case scenario, this may reduce to 20-25% and if the lockdown persists, India’s steel production has chances of going down to nil, they added.

Secondary sector

Among India’s three routes of steel-making – IF, EAF and BF/BOF, obviously, the first two can be easily shut down, being electricity-dependent.

Production from the secondary sector has reduced or will reduce to a mere 5% since it has no choice – no customer to sell to at present. In a best-case scenario, analysts are taking a 5% production continuation in this segment that contributes almost 50% of steel-making.

Almost all the more than 40 small and medium players SteelMint spoke to seem to have shut operations for the time being, are discontinuing despatches, facing lack of trading activity or labour issues. These include Aone Steel, Karnataka (two plants are closed, one is operational but the company is planning to shut down the third unit too), Bajrang Re-rollers, Rourkela (not operational in trades), BS Sponge, Raigarh (no new offers, no trades, looking to despatch old bookings but trucks are not available), Shalini Steels, Hyderabad (has shut down plant), SRJ TMT, Jalna(production shut down as more than 10 people cannot gather at one place as directed by the government), Kalika TMT, Jalna (plant closed as per administrative order), Khandelwal Str., Gujarat (production halted), Jaideep Metallics and Alloy, Mumbai (markets closed till Match 31), Shree Krishna Industries, Burdwan, West Bengal (the state is locked down, all big, medium and small industries are shut down), to name a few.

A source in Godawari Power & Ispat said, “We had shut down the steel plant but are trying to keep our mines running… difficult though as we are not getting support from locals. We cannot say anything right now.”

India Finish Steel Production FY20 (April-February)

Fallout on BFs/BOFs

The story is a bit different in the case of BF/BOF players. Importantly, once a BF is idled, it takes 30-40 days, depending on the size, to reheat, and it happens only in contingency situations. Not to speak of the finances required. So the integrated players cannot afford to idle operations and need to continue producing some item.

As per sources, most of the mills which are opting for “production curtailment”, will keep producing semis like billets and flats, it is learnt, to tide over the crisis period. The semis will serve two-pronged benefits. One, these can be converted into finished items when the domestic demand rebounds. Two, post the Covid-19 crisis, China will be scouting markets for semis as its factories return to production and its own domestic demand rises and Indian mills will have an export destination there.

Indian mills can “blank” BFs, ie, not run them at full capacity but at a partial 35-40% capacity. Even if we assume that the BFs are running at 40% capacity, it would mean that only 40% of India’s 45 MnT capacity will continue production. This is essentially because, first, there is no guarantee of steady supply of raw materials. Primary mills will need to ration their raw materials since they will have to keep on running their BFs at a nominal capacity. Even if they have enough raw materials, they may need to ration the same since they do not know how long the lockdown will continue. Secondly, and importantly, there are no customers and therefore the mills are not generating any working capital. So how will they pay the iron ore miners, railways, etc

Raw material uncertainty

Iron ore supply is getting squeezed, while ports are not handling coking coal. There are three types of problems here. First, the mines: Even if Odisha miners said they will continue with the production, there are no labourers to liG the iron ore on to trucks and rakes. Secondly, interstate transport of explosives now will be a huge problem since these are not an essential commodity. Thirdly, even if railway freight movement is being allowed, road transportation is not.

Thus, it is clear that BF/BOF players are facing a problem in the supply of raw materials, says an industry source. Which means these players will have to scale down their production and keep their BFs in operation only at a minimum possible level.

“All the big players are doing that. They are down to 40%, at best 50% of their capacity utilisation. So, capacity utilisation-wise, 45-50% of 45 MnT divided by 12 is what the big players will be cumulatively producing now. And with the secondary sector’s production, at best at 5% of 50%, no more than 30% total production is happening in India because of the virus,” corroborated the industry source.

And in worst case scenario, this may go down to zero if the lockdown persists.

JSPL: Speaking to SteelMint, V.R. Sharma, Managing Director, JSPL, said: “Work has been affected to the extent that we have stopped all temporary works such as those associated with civil construction and sent many employees on leave as their functions at present are not absolutely essential…”

He added that no production cut has happened yet. “This happens when there is some disturbance in the incoming supply chain. For example, there could be disturbances in supply of iron ore, coal, limestone and dolomite. Also, we could run out of spare parts, electrical or otherwise, that are essential for running the plant. Operations could come to a halt if we don’t have all the necessary spare parts… So, if there is a problem with regard to accessing vital components only then will production stop.”

SAIL: An official source in SAIL told SteelMint that as per government guidelines, requisite permissions have been obtained from respective state governments/authorities to keep the vital plants and equipment in running condition with minimum manpower and all necessary precautions. “Keeping the vital plants and equipment in running conditions is essentially required…,” the source said.

SAIL is facing challenges in areas like road movement of essential items required for production, clearances and handling at ports, difficulty in unloading of materials from rakes at sidings etc, which is leading to pile-ups of finished goods at shipping bays of plants and cancellation of orders by customers due to handling/marketing and commercial issues, the source said.

JSW Steel: JSW Steel, with a capacity of 18 MnT per annum, as per sources, is planning to cut production by 30% at Vijayanagar works. JSW Vijayanagar’s BF 4 shutdown is being planned for 48 hours. JSW Vijayanagar’s SMS 1 shutdown and BF 2 blow-down has started. Bhushan Power&Steel’s Jharsaguda SMS 1 & 2 have been closed while BF2 is in shutdown, as per unconfirmed reports.

Unconfirmed market sources also said, Vijayanagar’s production from the last two days are at 8,000 tonnes (MT) and 5,000 MT with the plant running at very low capacity, while Dolvi may go for shutdown in operations shortly. Some employees (from Alibagh) have been allowed to come inside because manpower also required for the shutdown process. However, there is no company confirmation on this.

As per a notice to the Bombay Stock Exchange, JSW Steel said: “In the wake of the novel Coronavirus (COVID-19) outbreak across the world, including India, …the manufacturing operations in all of our locations have since been either scaled down or suspended (in certain locations). Consequently, the capacity utilisation is expected to go down significantly during this period of lockdown. The company has taken the decision to scale down/suspend production to support the cause of containment of the pandemic Covid-19, notwithstanding the exception to manufacturing units with continuous operation and the units producing essential commodities (steel is classified as an essential commodity under the Essential Services Maintenance Act, 1981 (ESMA)). The overall adverse impact on the operations of the company during the period of this lockdown, on account of the above and the expected financial impact, is not ascertainable at this stage.”

India Crude Steel Production FY20 (April-February)

RINL: RINL, as per company sources. is reducing production by nearly 30%, but is expecting things to improve after about seven days. The source further said, “We are operating the plant very well and reducing production to a little extent. We are working in three shifts in addition to the general shift. There are restrictions from the district administration for employees coming from the city due to the total lockdown. Employees from the township and nearby areas are attending duty. Work from home is made available to administrative state. There is no panic in Vizag.”

ArcelorMittal Nippon Steel India: Port-based ArcelorMittal Nippon Steel India, with a rated capacity of 10 MnTPA, shut down its entire gas-based iron making process effective Wednesday (March 25), with the overall iron ore-making process cut by 70-80%, as per market sources.