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India lockdown: Domestic steelmakers scale back production

Singapore — India's steelmakers have scaled back production as end-users either halt or reduce operations after a 21-day nationwide lockdown was imposed Wednesday to contain the coronavirus pandemic, producer sources said.

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The Steel Authority of India Ltd, or SAIL, Thursday said it has "rationalized" operations at all domestic sites. A source close to the steelmaker said run rates had been cut by 30%.

SAIL, which has about 21 million mt/year of crude steel production capacity across five integrated plants, said in a statement: "Capacity utilization is likely to go down during this period of lockdown."

According to data from the state-run Joint Plant Committee, SAIL produced around 1.44 million mt of crude steel in February, so a 30% cut in run rates would equate to a loss of more than 400,000 mt/month of production.

India's JSW Steel, which has around 18 million mt/year of capacity, announced Wednesday it had also curtailed domestic steel production.

"Manufacturing operations in all of our locations have been either scaled down or suspended. Consequently, the capacity utilization is expected to go down significantly during this period of lockdown," the company said in a statement. It did not provide a breakdown of the plants affected.

S&P Global Platts reported earlier that JSW Steel was shutting down one blast furnace as its Vijaynagar plant in Karnataka on Wednesday, as well as reducing run rates at three other furnaces to 50% from Wednesday and 25-30% from Thursday.

"The overall adverse impact on the operations of the company during the period of this lockdown, on account of the above and the expected financial impact, is not ascertainable at this stage," JSW said.

Similar to SAIL, JSW produced about 1.49 million mt of crude steel in February, so a 30% reduction would amount to a production loss of nearly 450,000 mt/month.

Despite the cuts in supply, CRISIL's Isha Chaudhary said: "The concern emerges from the demand side – construction, automotive and capital goods. The lockdown has resulted in limited construction and the shutdown for auto and component plants. This shall therefore result in steel production cuts in coming months as there is limited offtake."

The companies' decisions also run counter to India's steel ministry urging major steelmakers not to cut production, citing the production, supply and distribution of steel as an essential service.

Rashtriya Ispat Nigam Ltd said it was still running its 7.3 million mt/year Visakhapatnam steel plant (Vizag Steel) at normal rates, opting instead to impose measures such as hygiene awareness, disinfecting its premises and allowing non-executive staff to work from home until April 4.

END-USERS SCALE BACK

Steel cable maker Usha Martin said it halted operations indefinitely at its mill at Ranchi in Jharkhand state and at its subsidiary UM Cables' Silvassa plant on Tuesday. The company has combined production capacity of 250,000 mt/year.

Jindal Stainless (Hisar) shut its 800,000 mt/year Hisar plant in Haryana and its ferolite division at Kothavalasa in Andhra Pradesh on Wednesday "till receipt of further directions from the government.'

Jindal Stainless, one of the largest stainless steel manufacturers in India, confirmed it has shut its Jajpur plant in Odisha. The company has about 1.1 million mt/year of production capacity. Jindal Stainless (Hisar) was formerly part of Jindal Stainless.

Gilette India said its operations have been impacted by the lockdown, anticipating "the disruptions in operations to continue for a period of next three weeks at a minimum. The impact of disruption of operations cannot be assessed at this point."

Goa Carbon shut its 125,000 mt/year plant at Paradeep in Odisha on Tuesday. Goa makes calcined petroleum coke, used to make graphite electrodes for electric arc furnaces and improving the carbon content in steelmaking and ductile iron foundries.

"[The] situation is fluid," CRISIL's Chaudhary said. "In our baseline view, we assume Q1 [April-June] to be a complete washout. July-September is a seasonally weak quarter. Some revival in H2 [October 2020-March 2021] shall help, however, the government's ability to spend on construction and economic impact on discretionary spend will weigh on any recovery.

"In most likelihood, we expect current fiscal year [April 2020-March 2021] steel demand growth to contract by 5%-10%," he said.