1,200 engineering units face closure threat due to industrial oxygen, raw material shortage

While COVID-19 is spreading fast and industrial oxygen is being diverted to save lives, thousands of engineering units and ancillary suppliers to various industries across the country are facing closure threat due to shortage of industrial oxygen and raw materials.

In Thane in Mumbai, at least 850 small scale ancillary units supplying engineering products to large companies are on the verge of closure. "Most of our units are into fabrication and that requires industrial oxygen for operations. More than that, we are not able to source raw materials as shops in the main steel markets in Mumbai are not allowed to open. With more restrictions coming in for travel by train or bus from today night, we fear workers will not be able to come," said Salam Ali Dabir, chairman of Pokhran Lake Small Scale Industries Association in Thane.

Most units were recovering from last lockdown and now have orders at hand, but are not in a position to meet supplies, he said.

Rating agency CRISIL estimates that the central government's decision to ban use of industrial oxygen from April 22, except for nine sectors, will impact companies in multiple sectors.

"The disruption in the supply of oxygen for industrial use would temporarily impact the revenues of small and mid-sized companies into metal fabrication, automotive components, shipbreaking, paper, and engineering. These typically do not have captive oxygen plants and source their requirement through merchant suppliers for operations such as welding, cutting, cleaning and chemical processes," said Gautam Shahi, Director, CRISIL Ratings.

Sources said the Thane-Belapur-Bhiwandi belt has over 1,200 small and medium engineering units, mainly making industrial vessels, boilers, drums etc. Many also had got good sub-contracts for supply to defence industry manufacturers. "In the past couple of weeks, half of the engineering units were operational, and now many have closed down due to lack of raw materials like steel and pipes and industrial gas for cutting and welding," said Mohan, a member of Thane Small Scale Industries Association(TSSIA).

Ninad Jaywant, General Secretary of Chamber of Small Industry Association (COSIA), Bhiwandi, said out of 3,000 plus MSMEs in the Thane, Belapur and Bhiwandi belts, the most affected are engineering companies, textile and leather units (about 450). Specialized cutting and lathe jobs like arc welding require industrial gas, which is now being diverted as medical oxygen for hospitals. Besides, the main steel and engineering sourcing market in Masjid Bandar in Mumbai and other hardware shops in most industrial belts are closed, he said.

In a meeting held today to discuss oxygen availability, officials informed Prime Minister Narendra Modi that against the present demand of 6,785 MT/day of liquid medical oxygen (LMO) from 20 states, the Centre has been allocating 6,822 MT/day to these states since April 21. Availability of LMO has been increased by about 3,300 MT/day with contributions from private and public steel plants, industries, oxygen manufacturers as well as through prohibition of supply of oxygen for non-essential industries.

Before the pandemic, India's requirement of medical oxygen was at about 700-800 MT per day. Supply of medical oxygen is regulated by the Empowered Group (EG) II, headed by the Secretary - DPIIT (Department for Promotion of Industry and Internal Trade).

The government is also planning to import about 50,000 MT of medical oxygen. Oxygen is consumed by industry in two ways -- onsite, and merchant sales. Onsite is through captive plants for process-driven industries (including the nine sectors exempted by the government), which account for 75-80% of oxygen manufactured in India. Setting up an air-separation plant or importing oxygen requires significant lead time and involves relatively prohibitive cost. The impact will be greater for companies in Maharashtra, New Delhi, Rajasthan, Madhya Pradesh and Gujarat, where medical oxygen demand has increased multiple times due to high COVID-19 case loads, said sources.

The balance 20-25% is supplied through merchant sales (called liquid oxygen) through cryogenic tanks and cylinders. The healthcare sector was consuming about 10% of merchant sales, but the demand is estimated to have sky rocketed five-fold in the second week of April versus pre-pandemic levels as COVID-19 infections took off. "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," says Sushant Sarode, Associate Director, CRISIL Ratings.

Following the COVID-19 crisis, the Petroleum and Explosives Safety Organisation (PESO) had come up with standard operating procedures (SOPs) for conversion of industrial oxygen cylinders and non-toxic non-inflammable gas cylinders to allow industrial gas filling units to convert their industrial and inert gas cylinders to medical oxygen. The Maharashtra government has also regulated production of oxygen in the state till June 30 to ensure production is uninterrupted and as per the maximum production capacity. The government stipulated that 80% of production should be used only for medical oxygen and should be supplied to hospitals in Maharashtra. Production units can divert only up to 20% of oxygen for industrial use.

Meanwhile, many steel and other process industries in oil and gas sector like Reliance Industries, JSW and Vedanta are now converting their industrial gas capacities to make medical oxygen. About 28 steel plants of both public and private sectors are supplying about 1,500 metric tonnes (MT)of medical oxygen every day. A stock of 30,000 MT is being made available for medical use, according to the Ministry of Steel.

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