NEW DELHI: Scores of small Indian steel producers have warned of production cuts as the escalating Middle East conflict disrupts gas supplies to the world’s biggest producer of the alloy after China, industry officials said.
“We are looking at a 50% production cut as of now and a complete halt ahead, if supplies don’t improve within a week,” Yogesh Kanakiya, director at Triveni Iron and Steel Industries, told Reuters.
Triveni Iron and Steel Industries is based in the western state of Gujarat, the country’s largest gas-consuming region, which relies on the Middle East for much of its liquefied natural gas.
Several small steel mills in Gujarat depend on imported LNG.
Most gas producers, including Gujarat Gas declared force majeure last week to restrict gas supplies to industries.
“We work on wafer thin margins and our margins have shrunk,” said Anshum Goyal, managing director and promoter at Friends Steel Group in Gujarat. “We are concerned over supplies and it is affecting our decision-making in terms of prices we need to keep.”
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Producers in other parts of India are also grappling with rising coal costs fuelled by geopolitical tensions, adding pressure on margins.
About 6% of India’s steel output uses gas-based direct reduced iron, or DRI, while roughly 50% depends on coal-fired blast furnaces.
“The ongoing geopolitical tensions have led to roughly a 10-12% increase in coal and freight costs,” said Rahul Mittal, chairman of the Sponge Iron Manufacturers Association.
India produces around 50 million metric tons of sponge iron annually, largely used by secondary steel producers as raw material.
The impact of falling gas supplies has been exacerbated by sharp rises in imported coal prices.
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South African thermal coal prices at Indian ports jumped by around 10-13% last week to a three-year high due to firmer freight rates and broader Middle East tensions, commodities consultancy BigMint said.
Coal buying in India has become more cautious amid higher freight costs and elevated global coal prices, said Vasudev Pamnani, director at Gujarat-based coal trader i-Energy Resources.
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