With an annual production capacity of 1.5 million tonnes (MnT), the Indian refractory industry is an integral part of the country’s steel ecosystem as well as other thermally intensive industries such as cement and glass. The coronavirus-induced nationwide lockdown has severely impaired the functioning of the manufacturing sector, and the refractory industry is no exception. In fact, the disruption is quite severe, informs an industry veteran, with the sector running on a capacity utilization rate of little over 10%.
Production hits a roadblock
Production has been greatly disrupted, as one domestic refractory manufacturer put it, and a number of major plants have suspended operations. The prevailing lockdown has also had an adverse impact on cargo unloading and logistics, with unavailability of manpower, among other pressing issues, clogging the supply chain, says a senior member of the Indian Refractory Makers Association (IRMA).
The apex body of refractory makers has already represented to the Ministry of Steel as well as other important ministries and to various industry bodies to bring the refractory and refractory raw materials industry under the ambit of the Essential Services Maintenance Act, 1981, as SteelMint reported recently.
“The nationwide lockdown has greatly disrupted operations of all refractory makers,” says Parmod Sagar, Chairman, IRMA, and MD & CEO- India, RHI Magnesita, a leading global refractory producer. “Since the lockdown, production in all refractory plants have been suspended. In the last seven days alone there has been a cumulative revenue loss of around INR 200 crore due to production loss. On the other hand, the disruption in goods movement has resulted in another INR 150-200 crore worth of refractory material being stranded in transit across the country.”
Demand supply dynamics amid lockdown
However, despite severe curtailments in steel production and panicky shutdowns, especially of many induction and electric arc furnaces in the country, there is demand for refractory materials, says a senior official at IFGL Refractory that caters solely to the steel industry. “There are often emergency orders to attend to and more or less some demand from the integrated steel sector, with PSUs such as SAIL and RINL continuing production albeit on a reduced scale,” he says, with the rejoinder that demand could eventually dry up if the lockdown persists for too long.
“Even all the primary producers could take JSW’s lead if the current situation persists. Refractory makers, in such a scenario, would have no option but to suspend operations like Orient Refractories, among others. Even IFGL is churning out only around 30-40% of its normal daily production,” he informs.
Dwelling on demand emanating from the steel sector, Sagar states: “Being an essential commodity under the ESMA, most of the integrated steel plants have been operating during the lockdown mainly because shutting down blast furnaces is an extremely difficult proposition. Restarting a blast furnace takes 1-1.5 months’ time and has a cost implication of around INR 200-250 crore. To avoid this, the large steel producers are continuing production, though at a lower level. However, the mini steel plants are mostly shut down.”
“There have been cuts in production in some of the integrated steel plants, in some cases up to 50% of production capacity,” maintains Sagar. “This has definitely impacted refractory demand. However, the major steel producers are considering re-stabilizing their production levels provided adequate manpower, raw material and refractories are available. Refractory is one of the vital input materials in the steel production process, without which steel cannot be made. Most of the large steel makers maintain on an average 15-20 days’ inventory of refractory material. This needs to be continuously replenished considering that steel making is a continuous process. Hence, it is essential that refractory makers continue production so that supply to steel plants can be maintained. Refractory on its own has about three weeks’ production cycle time. Even transporting existing ready material from the plants to the customer sites takes around six to seven days. With this in mind, it is essential for refractory makers to continue production to meet the short-term demands of the steel industry.”
Clogged supply chains
Indian refractory manufacturers are dependent on China for imports of key raw materials such as magnesia and bauxite. Total annual imports, informs an industry source, is in the region of INR 300-350 crore. Clogged logistical networks and lack of transportation facilities are taking a toll on timely delivery of raw materials. In addition, refractory manufacturers have to abide by the government’s diktat that vessels from China are required to be put on a 14-day quarantine period. However, with the situation in China improving somewhat seaborne supply uncertainties have ceased to an extent.
“Around 60-70% refractory raw material comes from China. Fortunately COVID-19 has not majorly impacted the Chinese raw material supply, though it has become a bit erratic. However, we are facing serious issues in movement of imported raw materials from the ports to our plants after the full lockdown came into effect, primarily due to the breakdown in the logistics network,” says Sagar.
Commenting on the impact on RHI Magnesita’s production facilities, both domestic and global, he says: “The pandemic has created a situation of global uncertainty. RHI Magnesita’s primary focus is on the health and safety of its employees around the world. The company has continued to operate its production capabilities and supply chain, enabling it to deliver to customers during this period of crisis. In China our plants have remained open throughout the crisis, with employees working in an environment of safety. Across the rest of the world, plants are also open and are operating with strict restrictions such as pre-work temperature checks and ban on travel between plants. All corporate offices are closed with employees working from home. Whilst the company has seen no material financial effects on the business to date, the impact of COVID-19 on demand from its customers is very uncertain. RHI Magnesita is engaging customers closely to understand their current production rates, stock levels and short-term requirements.”
Uncertain outlook
Outbreak of COVID19 and the government’s subsequent actions have led to a very dynamic and fast-changing situation, says an industry expert. Assuming that the lockdown is lifted after April 14, it would still take 15-20 days to assemble everything and start normal operations. It is too early, he says, to comment on the short- to mid-term impact of the pandemic.
“It is very difficult to conclusively coment even on the short-term outlook at the moment. We would be in a position as a company as well as industry to really evaluate the material financial impact and have a clear outlook only after the situation eases out to some extent and the lockdown is over,” rounds off Sagar.
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