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Aerial view of blast furnace at Essar Steel in Hazira, Gujarat.
Aerial view of blast furnace at Essar Steel in Hazira, Gujarat.

Steel industry struggles as blast furnaces begin shutting down

Despite steel being an essential commodity and classified as a continuous process industry, analysts expect that the industry will find it difficult to recover from a disastrous first quarter

Mumbai: The steel industry is reeling under the side-effects of an extended national lockdown and a near complete disappearance of demand. Blast furnaces and the molten steel they produce - that enduring image of industry - are slowly being shut down across the country.

Despite steel being an essential commodity and classified as a continuous process industry, analysts expect that the industry will find it difficult to recover from a disastrous first quarter, with demand expected to contract at least 14-17% in FY21, compared to the previous fiscal.

Blast furnaces are large reactors used for smelting iron ore into liquid steel at temperatures ranging from 900-1300˚ Celsius and so need to run continuously. Once a blast furnace is shut down, it is both expensive and time-consuming to restart it, taking 15-20 days to stabilise operations based on the design and size. Tata Steel, India’s largest private steelmaker by capacity, has shut down one of its blast furnaces at Dhenkanal, Odisha, while the furnace at its flagship plant in Jamshedpur is running at a third of its capacity. JSW Steel has also shut its blast furnace in Dolvi, Maharashtra. The company has curtailed production of crude steel at its mother plant in Vijayanagar, Karnataka. AM/NS India has also slowed its furnaces at its plant in Hazira, Gujarat. Mint couldn’t confirm if the curtailment has begun at public sector SAIL, although industry reports indicate reduced production across the board.

Medium-sized steelmakers are reducing production as well. Hospet, Karnataka-based engineering steel maker Kalyani Steels has shut down its blast furnace as well, seeing steel demand disappear from the market altogether. RK Goyal, MD of Kalyani Steels, said that both his plants, in Pune and Hospet, have been shut since the lockdown began on 22 March. “We didn’t want to place our employees at risk. Technically speaking, we were allowed to reopen plants as steel is classified as an essential commodity but in most places the local administration isn’t allowing factories to function and no transport is available. Even if we want to run the plant, we need to move materials on a daily basis."

To Mint’s queries, a spokesperson for JSW Steel declined to comment on market rumours. An earlier statement from Jayant Acharya, Director (Commercial and Marketing), JSW Steel, said: “We are evaluating restarting our facilities now in a phased manner within the protocols and guidelines (of the government)".

A spokesperson for Tata Steel said: "The first one week of lockdown was perhaps the most challenging in the context of managing the supply chain, ensuring logistics and availability of critical consumables. Post this we had to recalibrate keeping in view market demand, inventory levels and cash considerations. In the last ten days, we have been operating at 50% levels at our main sites. At Tata Steel, we will continue to monitor the situation closely and stand ready to review our decisions based on the developments on the ground."

A spokesperson for AM/NS said: "The production at AM/NS India has been regulated keeping in mind the steel demand and supply chain disruption. The pellet plant is operating at higher capacity levels than the steel plant. However, our plant and equipment is maintained and kept in readiness for a possible ramp-up as soon as the lockdown eases and demand revives. There is no additional capital required for ramp-up."

Outside of the large players, medium and small mills form half of India’s fragmented steel producing industry. Goyal said with his customers’ businesses, which are mostly automotive and auto component manufacturers, being shut as well, there is no derived demand to cater to. “Most of our customers are still closed and we can’t forecast till our customers reopen their own factories. We don’t know what will happen after 3 May. We are continuing to pay salaries but I hear from colleagues that other companies are laying off staff. If the situation does not improve before June, then we will have to face a few more weak months because no construction happens during the monsoon season."

"It's still an evolving situation," a medium-sized steel manufacturer who did not wish to be named, told Mint. "April and May are very weak. We have shut down production completely. We make long products for the construction sector and with no road or building construction happening, demand has also dried up. We work on a cash basis, so if there is no revenue coming into the business, it is difficult to operate. We're willing to start production immediately, if demand is assured and if we are able to transport materials. Many other companies like us have also shut down."

“On a quarterly basis, steel demand will be a washout in the first quarter of this fiscal, given the pan-India lockdown that would hurt construction," a recent report by credit ratings agency Crisil said. “All automobile plants have also been shut, which will further weaken demand prospects.

There is also no respite from the capital goods industry in the current scenario. Demand will pick up only from the second half of this fiscal. “In our baseline scenario, steel demand in India would contract 14-17% this fiscal. Extended vulnerability, on the other hand, will increase the demand contraction to 22-25%, the report said.

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