NEW DELHI: The Centre’s decision to prohibit oxygen supply for industrial purposes in order to take care of treatment requirements for the rapidly rising number of Covid-19 patients will have an adverse impact on small businesses in at least five sectors, according to a report from Crisil.
The domestic ratings agency, however, said that the “hiccup” seems temporary for now, and that it would only lead to a limited decline in revenue. “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,” said Gautam Shahi, Director, CRISIL Ratings, “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.”
Demand for medical oxygen is estimated to have rocketed five-fold in the second week of April compared to pre-pandemic levels as Covid-19 infections took off. As a result, the central government has barred from Thursday the industrial use of oxygen, except in nine designated sectors, in an attempt to divert supplies for medical use.
The consequent higher supply of medical oxygen will save lives, but will have a bearing on select sectors. The impact will be greater for companies in Maharashtra, Rajasthan, New Delhi, Madhya Pradesh, and Gujarat, where medical oxygen demand has increased multiple times due to high Covid-19 case loads, the agency added.
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 per cent of oxygen manufactured in India. The balance is supplied through merchant sales (called liquid oxygen) through cryogenic tanks and cylinders. The healthcare sector consumes about 10 per cent of merchant sales, and others the rest.
Setting up an air-separation plant or importing oxygen requires significant lead time and involves relatively prohibitive cost. That leaves them more vulnerable compared with larger peers, Crisil noted, adding that a prolonged and intense second wave that curtails oxygen supply to industries for a longer period than expected will exacerbate downside risk in affected sectors.
Private sector steps in
With several states flagging an oxygen shortage as Covid-19 cases surge, the Tata Group on Tuesday said that it is importing 24 cryogenic containers to transport liquid oxygen and help ease the shortage. Other large manufacturers including Reliance Industries, JSPL, SAIL, JSW Group, Vedanta, and AMNS India are also ramping up production of liquid medical oxygen. According to the steel ministry, 28 oxygen plants located in the steel facility of both public and private sectors are supplying about 1,500 tonnes of medical oxygen every day