Steel demand: Diversion of oxygen for Covid adversely impacts steel production

31 May 2021 CW Team

India has always been considered a major player in the global steel industry virtue of domestic availability of iron ore and cost effective labour. In 2020, India’s steel consumption was 88.5 million tonne (MT) with a sharp 20% contraction in March 2020 due to the onset of Covid and consequent measures.

After the 13.7% decline in 2020, India’s steel demand was expected to rebound by 19.8% in 2021. But when the second wave hit India, stronger than before, India’s steel market which was slowly reviving, took a hit again.

The second wave of Covid-19 had a different impact on the industry as compared to the first wave. Reason being the lack of oxygen. Amidst the rising need for medical grade oxygen, on April 25 the government put down some restriction on use of oxygen for industrial purposes. The main industries which were affected by this were the steel and oil industries. This combined with labourers returning home, as several states announced lockdown, adversely affected the steel production in the month of April. The steel production slowed down in April 2021 after reaching 10 mt in March, which is a 20.6% m-o-m fall. Consumption also fell by 25.7% m-o-m. Export of steel also fell by 13-15% owing to this oxygen diversion.

Steel producers have observed a fall in output over the last couple of months because of the oxygen diversion for medical use but according to industry insiders profitability will likely remain stable due to high prices. Some top players of the industry who witnessed a significant fall are Tata Steel and Steel Authority of India who fell by one-third as compared to the one year ago period. Likewise JSW steel also fell by 18.6%. According to some companies, reduced steel output is an obvious repercussion of diversion of oxygen for medical use but production is not more important than rising to the occasion and helping the country fight the pandemic.

As of April 2021, the World Steel Association forecasted that demand growth for India in 2022, will be low at 5.9%. After the steel production decline in the last two months, this number may change. However, as of May 31, government officials confirmed that due to the fall in demand for medical use of oxygen, the government is planning on lifting the restrictions and allowing use of liquid oxygen for industrial purposes again. This has come as a breath of fresh air for steel producers. The lifting of these restrictions could shoot up the production and output and hence provide a push towards the industry's recovery.