Indian refractory makers hit hard as manufacturing grinds to a standstill

MUMBAI: The Indian refractory market - a key raw material for the production of steel, cement and glass - has seen a sharp fall in demand in line with the near absence of construction activity and thus consumption of these end products. Even as there is expectation that government will ease lockdown restrictions further going ahead, refractory makers believe it will take until the third quarter for business to stabilise.

Refractories are ceramic materials, typically shaped as bricks, designed to withstand very high temperatures needed to manufacture steel, non-ferrous metals, cement, glass, ceramic products etc. The Indian refractory market was sized an estimated ₹9,000 crore as of last year, with the domestic steel industry by far its largest customer.

“During the lockdown so far, almost all manufacturing plants were closed and transportation became difficult,” Sameer Nagpal, group chief executive, Dalmia OCL, told Mint.

“...Although we made a pitch to the government that being part of steel industry, we should also qualify for continuous process status, that didn’t happen...While steel plants now have started producing again, the biggest challenge is how fast production can be ramped up.”

About half of Dalmia OCL’s sales are to the domestic steel sector.

According to the data released by Joint Plan Committee (JPC), India’s crude steel output fell a record 69.5% year-on-year in April to 2.8 million tonnes, while demand contracted by a staggering 91%.

Although the steel industry was allowed to operate, output slumped in line with the fall in demand from user industries. Domestic steel production has taken a substantial hit in the months of March, April and May when the country was under lockdown as most user industries witnessed halt in production. In line with this trend, refractory makers produced less than 15% of their monthly production in April and May.

TRL Krosaki, the largest refractory maker in India with about a quarter of the market share, wasn’t allowed to keep four of its five manufacturing units - in Gujarat, Madhya Pradesh, Tamil Nadu and Jharkhand - open. “From capacity utilisation of 100% in the second week of March, we fell to 30% in April,” Sunanda Sengupta, executive vice-president, sales, marketing and customer care, told Mint. About 80% of their sales traditionally has been to steel mills.

“The demand is just not there,” Sengupta said, “and our plant in Odisha which had permission to operate, production became a challenge because of workplace safety norms. Even though steel plants are increasing operations this month, our outlook has not improved significantly. It might take until October to normalise.”