Metals: Demand for metals melts away forcing a rethink on smelting

Kolkata: Metals majors are staring at production cutbacks following the 21-day lockdown in the wake of the Covid-19 outbreak that has sharply shrunk demand.

JSW Steel, one of the country’s largest private steel companies, has decided to scale down or suspend production at its units in the wake of the global pandemic.

Tata Steel and SAIL, two other steel majors, are maintaining production with a skeletal workforce. Experts said Indian steel companies may have few options left in this extraordinary situation where demand has sharply dwindled.

Shutting down or ‘idling’ a blast furnace will be the last resort and companies may instead opt for maintaining plant and equipment on a standby mode with only critical operations running or advancing planned maintenance shutdowns.

“We expect all major steel plants to reduce operations significantly over the next 7-10 days, despite getting exemption to maintain services under the Essential Services Maintenance Act (ESMA),” Emkay Global said in its metals sector update on Thursday. “We expect them to keep only critical operations in a standby mode to help them re-start and ramp up production as soon as the govt removes the nationwide lockdown with minimum restart costs,” it added.

SAIL, the largest state-owned steel company, said it had requisite permissions “to keep the vital plants and equipment like blast furnaces and coke oven batteries in running condition with minimum manpower”.

The issues faced by SAIL include road movement of inputs, clearances and handling at ports, movement of employees and labourers, difficulty in unloading of material from rakes at sidings. This has caused inventory pile-ups of finished goods at shipping bays of plants. It has also resulted in cancellations or rescheduling of orders by customers due to handling, marketing and commercial issues.

The steel ministry has urged PSU steel makers to maintain production levels. However, this is proving to be increasingly difficult.

Non-ferrous metals companies like Hindalco and Hindustan Zinc (HZL), too have announced production cutbacks. Consequently, “Q1FY21 is expected to be a record low quarter for steel and non-ferrous metal companies in terms of both topline and EBITDA/PAT on the back of exceptionally weak demand”, the Emkay report said.

Most domestic auto majors, buyers of flat steel items, like Maruti Suzuki, Honda, Hyundai and Tata Motors have announced either a cutback or stalling of production. Construction activity, which uses long steel products, too has come down to a trickle.

Hindalco announced it had shut down or scaled down operations, barring essential activities, at its aluminium and copper plants and mines in response to state government directives.

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