Tata Steel's Kalinganagar Plant Shutdown Supporting Indian HRC Prices?

On 29 Jan’18, the blast furnace at Tata Steel’s Kalinganagarplant was unexpectedly shut down due to technical snag hitting company’s annual target to churn out 3 MnT of crude steel in current fiscal of FY18.

Since the downstream operations are integrated to the blast furnace, Steel Melting Shop (SMS) and Hot Strip Mill (HSM) had also been shutdown subsequently.

According to market reports, the company immediately started the repair work of the furnace and the plant was expected to resume its operations by mid-week of Feb’18.

However, as per the latest update that SteelMint has received from company’s (Tata Steel) sources, the resumption of operations at the plant is delayed further by one week and that the repair work will be completed by fourth week of Feb’18. Also, although the repair work will be done, the blast furnace will resume operations only in the month of Mar’18.

Production loss incurred by the company

With an annual production target of 3 MnT, the average monthly output of Tata Steel’s Kalinganagar plant comes at 0.25 MnT. Now with the shut down for almost a month, the production loss will be around 0.25 MnT and the total shortfall in targeted output is estimated to be between 0.2 to 0.3 MnT.

As quoted by Anand Sen, president, TQM & Steel Business at Tata Steel, the company expects to close the fiscal year with 2.7 to 2.8 MnT of crude steel output.

Reason for hike in domestic steel prices spotted

India’s domestic steel prices have been surging especially since Nov’17 due to increased supplies by the domestic manufacturers to export market amid better realisations. However, the hike in steel prices over the past three weeks after 29 Jan’18 till today can be attributed to supply curb by the steel major, Tata Steel.

This is because, if we analyse India’s HRC export prices, the price surge from Nov’17 to Jan’18 was of about 14% thus motivating Indian producers to export their output. Whereas, there is no price surge in India’s HRC export prices from last week of Jan’18 (when Tata Steel’s blast furnace had to shut down) to current week of Feb’17, confirming supply restraint on the part of Tata Steel as a key cause for domestic steel price increase.

After the company’s operations will normalise in the month of Mar’18, it is being anticipated that that India’s domestic steel prices will not increase dramatically until export market once again become more lucrative to the producers than the domestic prices.