“Due to the heavy dependence of stainless steel manufacturing on industrial gases such as propane/LPG and natural gas, several processes across our plants have been adversely impacted,” said Abhyuday Jindal, managing director of Jindal Stainless, the country’s largest producer of stainless steel. “Given the constraints in fuel availability, our plants are operating at a rationalised capacity.”
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The impact on the current quarter is expected to be limited because companies typically carry inventories and production has been affected only towards the end of the quarter. However, the April quarter could see a more significant impact as disruptions take time to ease, experts said.
“Fuel and power together account for about 5-8% of a company’s topline, and LPG itself is majorly needed for the annealing line or reheating processes in stainless steel companies,” an analyst said on condition of anonymity. “More than LPG, logistics would be a bigger concern for companies given that raw materials are either not available or come at much higher prices because of force majeure.”
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Nickel, a key input used in stainless steel production, is almost entirely imported. The scrap used in the production of stainless steel is also imported.“Scrap for stainless steel is procured globally, including from US, Middle East and Europe, the crisis could impact this availability,” said Ravi Sodah, analyst at Elara Securities.
Disruptions along the key shipping route through the Strait of Hormuz are increasing transit times and delaying the delivery of raw materials, which could ultimately weigh on profitability.
“Clarity on the allocation percentage for industrial propane/LPG and natural gas, along with assurance of regular supplies, will be important for the stainless steel industry to plan and optimise operations,” said Jindal.
