Demand slump, labour shortage and raw material constraint have led to closure of many units
India's sponge iron industry, the largest in the world, is going through an acute shortage of labour that threatens to bring it to a halt.
Apart from the labour issue, a slump in demand for the product and squeeze in the supply of a key raw material has added to the woes.
Sponge iron is produced from iron ore and used in steelmaking through what is called the 'secondary route' in industry parlance.
The crisis, because of the lockdown following the COVID-19 outbreak, has already shaved off up to 6 percent of the industry's production in FY20. This is despite the fact that the steel sector has been kept under the essential services list.
"Though the governments at the centre and the states, and district officials, had made it clear that sponge iron sector is also an essential service, labour has been in short supply," Deependra Kashiva, Executive Director, SIMA, told Moneycontrol.
SIMA is the Sponge Iron Manufacturers Association.
Kashiva said the industry was expected to produce 33 million tons of sponge iron in FY20. But this will now fall by up to six percent.
The fall has now tempered the estimates for the new financial year. The initial target was 36 million tons for the FY21.
"I'm very worried as 70 percent of the manufacturers are small. They are also going through liquidity issues," said the senior SIMA official.
Demand slump
Much of the demand for sponge iron comes from the steelmakers. But nearly all of them, including JSW Steel, Tata Steel and AM/NS have cut production after the lockdown.
"If there is no demand from the steelmakers then the sponge iron manufacturers will be impacted. Almost all the manufacturers, in states like Odisha, West Bengal and Chhattisgarh, are closed," said Kashiva.
On the issue of labour, he pointed out that the shortage is a concern both at the plants, and also in the transportation sector. "Movement of material has been impacted. Like everyone, the labourers also fear the virus. It has created a panic," said the industry official.
It hasn't helped that supply of coal, a key raw material, has suffered because South Africa - one of the biggest sources, is itself going through a lockdown.
Help needed
The woes have prompted SIMA to reach out to the government. In a letter to Binoy Kumar, Secretary, Ministry of Steel, SIMA has asked for help to ensure supply of labour.In the letter sent on April 8, Kashiva has asked for the ministry's help to advise state governments that there should be no restriction on the movement of workers.
"Salary without work to be restricted only up to the initial lockdown period of 21 days which will expire by April 14, 2020. Afterwards, it will be paid to those workers who resume duty. Any absenteeism will be treated as without salary," listed out the letter of the industry needs.
The industry has also called upon the governments to allow steel warehouses to function, bringing electricity duty under GST, and asked for compensation cess of Rs 400 per ton on coal, to be abolished.
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