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Monday, May 17, 2021

Despite oxygen diversion for medical use, high prices may shield steel cos’ profit

The steel sector has diverted nearly all of its supply of liquid oxygen to hospitals that are running short of oxygen, as they treat patients suffering from Covid-19.

Written by Karunjit Singh | New Delhi |
May 2, 2021 12:46:24 am
"The cylinders were supposed to come from Mysuru but there was some glitch," Kumar said. (Representational)

STEELMAKERS MAY see a minor fall in output, as they divert nearly all of their supply of liquid oxygen for medical use. However, they will likely see profitability remaining stable due to high prices, according to industry sources. The steel sector has diverted nearly all of its supply of liquid oxygen to hospitals that are running short of oxygen, as they treat patients suffering from Covid-19.

“Safety stock of liquid oxygen is down from about 2-3 days’ worth of liquid oxygen to about 0.5 days and in some cases zero so if the (oxygen) plant goes down there will be an impact on production,” said an executive at a leading steelmaker, noting, however, that the sector was prepared to forgo output to provide liquid oxygen for medical purposes. Liquid oxygen is used as safety stock by steelmakers, in case of any disruptions at captive oxygen plants, which provide gaseous oxygen used in blast furnaces for steel production.

“The impact on output is expected to remain below 10 per cent and favourable steel prices will mean that overall profitability for the sector will be largely unaffected, “ the source added.

The steel sector has been supplying over 3,000 tonnes of oxygen for medical use daily as of late April. The price of steel has risen sharply over the past three quarters with the price of Hot-Rolled Coil (HRC) steel crossing Rs 62,500 per tonne in late April, up 71 per cent from the July 2020 low of Rs 36,500 per tonne, according to a report by ICICI Securities.

The move by steel producers to emphasise oxygen production instead of maintaining steel output will likely lower India’s steel exports, according to a report by S&P Global Platts. The report said India’s export of basic steel products had already been down 14.4 per cent in the three months ending January, compared to the year-ago period, with shipments to Asia accounting for 67 per cent of India’s exports. Shipments to Europe and the Americas accounted for 17.3 per cent and 6.8 per cent of total steel exports, respectively.

The report noted that exports by Tata Steel, and state-owned SAIL had fallen by about a third, compared to the year-ago period, while exports of JSW steel had fallen by 18.6 per cent.

The source, quoted above, added while the sector expected that lockdown measures would take effect and curb the spread of Covid, the sector was prepared to take a hit in steel production to meet the medical demand for oxygen if needed.

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