Shiprecyclers at Alang are struggling with a shortage of oxygen which has led them to cut or stop production. To treat the increasing number of COVID-19 infection, the government is diverting industrial oxygen to hospitals. Many downstream steel industries in Maharashtra have shut or reduced production as oxygen availability remains low for industrial activities.
Yards in Alang, Gujarat, which are around 150 in total, generate 8,000mt ferrous scrap daily. Davis Index learnt that 70pc of the yard are now operating at 30pc capacity due unavailability of oxygen. So, rough estimates suggest that scrap production in Alang is down by 15,00-1,700mt per day.
Some yards are paying more for oxygen cylinders to continue production. More yards could be willing to pay extra for cylinders if demand returns. There is uncertainty as to how long the shortage situation will last, said shipbreakers. Since last week, most yards have been offloading ready inventories to local mills amid low demand from the North-based mills. They said the current stock will last for 2-3 weeks.
In states like Maharashtra and Chattisgarh, the local governments have instructed oxygen suppliers to reserve 80pc of the oxygen cylinders for medical use and 20pc can be supplied to other industries. In pre-COVID times, the ratio was reverse. Also, during the lockdown, oxygen suppliers were easily supplying around 70-80 per cent of the oxygen to hospitals as most industries were shut. But as companies started to ramp-up production their consumption of oxygen increased by 50pc.
Steel mills in Mumbai and Raipur said they have not yet cut production despite limited supply of oxygen but if the situation persists then they might be forced to reduce output.
Majority of secondary lead smelters (90-95pc) in India use coal-based furnaces and therefore are unaffected by the shortages of oxygen cylinders. A few use different fuel-based smelters. Secondary lead smelters said their production process remained unchanged amid the shortages of industrial oxygen in the country.
Price of oxygen
The cost of liquid oxygen has sharply increased by two to four times depending on the region in the last few months, said a Kutch-based steel manufacturer. But production at their unit has still not been impacted by the shortage of oxygen, he added.
In Jalna, the price of liquid oxygen is at around Rs20/cubic meter, up from Rs12-14/cubic metre in August. Given the scarcity, black marketers have also emerged in some regions.
Downstream steel industries such as fabricators have either stopped production or cut output in Maharashtra, according to local media. Oxygen is required for cutting steel and the shortage has severely impacted production at units manufacturing parts such as doors for automobiles. Going ahead, the stalling of production work at downstream industries will further dampen end-user demand for steel and ferrous scrap.