India's small-scale steelmakers are facing production cuts due to LNG shortages caused by the Iran war

Industry officials say that a number of small 'Indian steel' producers have warned of production cuts due to the Middle East conflict, which is disrupting gas supplies for the world’s second largest producer of the alloy behind China.

Director at Triveni Steel and Iron Industries, Yogesh Kanakiya said, "If supplies do not improve in a week, we will be looking at a total halt."

Triveni Iron and Steel Industries, based in Gujarat, is the largest gas-consuming area of the country, and relies heavily on Middle East gas for a large portion of its supply.

Gujarat is dependent on LNG imports for several small steel mills.

Last week, most gas producers including Gujarat Gas declared force majore to limit?gas supply to industries.

Anshum Goyal is the managing director and promoter of Friends Steel Group, Gujarat. He said: "We are working on very thin margins. Our margins have shrunk." "We're concerned about supplies, and this is affecting the prices we have to maintain."

Other producers in India are also struggling with the rising cost of coal, fuelled by tensions geopolitical. This puts pressure on their margins.

Around 6% of India’s steel production is made from direct reduced iron (DRI) based on gas, while the other 50% comes from blast furnaces that are powered by coal.

The ongoing geopolitical tensions has led to a roughly 10-12% increase in freight and coal costs, said Rahul Mittal.

India produces approximately?50 millions metric tons sponge iron per year, which is mainly used as raw material by secondary steel producers.

Imported coal prices have risen sharply in response to the fall in?gas supply.

BigMint, a commodities consultancy, said that the price of South African thermal coal at Indian ports jumped last week by 10-13% to a record high. This was due?to higher freight rates and broader Middle?East conflict.

Vasudev Pamanani, director of Gujarat-based coal traders i-Energy Resources, says that coal buying in India has become more conservative due to higher freight costs. (Reporting and editing by Mayank Bhadwaj, Susan Fenton and Sethuraman NR)

(source: Reuters)