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Restriction in supply of industrial oxygen to impact revenues of small & mid-sized manufacturers: Crisil


MUMBAI: The disruption in the supply of oxygen for industrial use may temporarily impact the revenues of small and mid-sized companies into metal fabrication, automotive components, ship-breaking, paper, and engineering.

“The companies that do not have captive oxygen plants and source their requirement through merchant suppliers for operations such as welding, cutting, cleaning and chemical processes will see impacts in their revenues, said Gautam Shahi, Director of CRISIL Ratings in a report on Wednesday.

Setting up an air-separation plant or importing oxygen requires significant lead time and involves relatively prohibitive cost, so is not a viable option. That leaves the smaller companies more vulnerable compared with larger peers, the report said.

This comes after the central government has barred industrial use of oxygen from April 22, 2021, except for the industries like Ampoules & Vials, Pharmaceuticals, Petroleum refineries, steel, nuclear energy, oxygen cylinder manufacturers, wastewater treatment, food & water purification and process industries with the uninterrupted operation of furnaces.

Demand for medical oxygen is estimated to have rocketed five-fold in the second week of April versus pre-pandemic levels as Covid-19 infections took off.

Vivek Adukiya, director of, Steel Re-Rolling Mill Association of India, said that while steel is exempted from the order the company is still facing issues.

“We use oxygen for lancing and cutting steel when it comes out of the furnace. The company has several orders to fulfil in the next 30 days, and a lack of oxygen may result in lost business,” he said.

The requirement of oxygen is very low in steelmaking, maybe 0.5%. But without that, we have to shut down the plant,” said Adukiya. “Our liquid oxygen supplier informed us that it won’t supply from April 22 due to the government’s order. We are trying to get an alternative source.”

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Primary steelmakers have their own oxygen plants inside their integrated facilities, thus are not facing any major issues in terms of supply or production.

“There is no impact on production as these supplies are LMO (liquid medical oxygen) which is a by-product & not gaseous oxygen which is generally used in steel making. Also, we can increase production as we own the plants,” said one of the top steelmakers requesting anonymity.

Crisil expects only a limited decline in revenue for companies and said that their credit profiles are expected to be stable.

“At this juncture, we believe that the disruption in oxygen supplies for industrial use will be for 6 to 8 weeks. Besides, affected sectors can partly manage their oxygen requirements with inventory,” said Sushant Sarode, Associate Director,

Ratings.



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