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Sunday, Nov 03, 2002

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Signs of revival in domestic refractory industry

Rabindra Nath Sinha


THERE are signs of revival in the the domestic refractory industry that had been going through difficult times for the past three to four years.

This is partly due to an easing of the cash flow problems of the steel industry, which accounts for 75 per cent of the total domestic refractories consumption. But, perhaps, a more important reason is the significant export performance. In fact, the export prospects have never been so encouraging for the refractory makers in the past. Standing the refractory makers in good stead also is the reduction, after repeated pleas to the Finance Ministry, in the import duty on important refractory raw materials and thereby correcting the anomalous situation in which raw materials had been attracting more import duty than finished refractories. Further, the Centre has revised the DEPB entitlement for export of certain high alumina and alumina carbon refractories.

The decline in the fortunes of the steel industry in the last three years has had an adverse impact on the finances of the refractory makers; for there was total uncertainty about payments against supplies made.

In view of their cash flow problems, the steel plants took recourse to what may be termed as the recognised practice of issuing credit notes for steel supply to the refractory manufacturers who, in turn, were giving it to dealers at a discount of 2.5 to 3 per cent, depending on the products, to realise their dues.

With conditions permitting the steel companies to increase prices in instalments from April 2002, as a result of which their liquidity has improved, they have discontinued the practice of giving credit notes. This has meant a welcome change in the situation for the refractory units; although the steel plants are still taking four to five months to square up their dues.

In this context, it may be mentioned that because of the upgradation of technology and processes by major steel plants and their improved quality of refractories, there had been a significant drop in the specific consumption of iron and steel making refractories.

In some steel plants, the specific consumption of refractories is down to about 11 kg per tonne of liquid metal from about 23 kg three years ago.

This factor also applies to the other refractory consuming industries, such as cement, glass and non-ferrous metals, which, like steel, also have not seen much growth in recent years.

No wonder, the refractory industry, which has a capacity of about 15-lakh tonnes, has not been able to go beyond 46 to 47 per cent utilisation.

This was mentioned by Mr C.D. Kamath, the immediate past chairman of Indian Refractory Makers Association, at its AGM held here on July 22 last.

The upturn in export performance, in these circumstances, has, therefore, come as a major relief and confidence booster.

The value of the refractory industry's exports, which stood at Rs 55 crore in 1998-99, rose to Rs 86 crore in the last financial year.

Judging by the orders already received and expected, the industry is hoping to register exports worth Rs 100 crore in 2002-03. Its assessment is that if the trend persists, Rs 200 crore worth of exports will be a reality, say, by the terminal year of the Tenth Plan.

Some 13 years ago, it could export only Rs 1 crore worth of refractories.

The volume of exports and unit realisation in 1998-99 were 23,682 tonnes and Rs 23,500 respectively. The figures in 2001-02 were 29,912 tonnes and Rs 29,000 respectively.

Earlier, exports would be only to Bangladesh, Sri Lanka, Malaysia, Indonesia, Egypt and Syria. Now, its products are also being shipped to the US, the UK, Germany, Sweden, Finland and Chile. The market diversification has given the industry a confidence level that it never had in the past.

The export growth logically should facilitate better capacity utilisation.

In the domestic market, the refractory industry's most important customer naturally is Steel Authority of India Ltd (SAIL). It buys annually about three lakh tonnes of refractories out of the industry's production of seven lakh tonnes. The industry concedes that things have been difficult for SAIL in the past two to three years. But, now that the situation is better, it wants SAIL to reconsider some of its decisions/moves.

Of late, some of the SAIL plants have floated tenders ruling out indigenous supplies either explicitly or implicitly. This, in effect, is a restrictive practice, although it has to be conceded that they are free to import.

The indigenous refractory makers should at least get a chance to quote and if their price, quality and delivery schedule match those of prospective foreign suppliers, they should get preference.

Secondly, instead of the conventional performance guarantees with reference to specifications, SAIL plants are now demanding substantially larger number of heats/throughputs and minimum performance in furnace/vessel life, which have no relation with historical levels/actual performance achieved. What is more they are not committing themselves to consistency in/standardisation of operations.

Thirdly, they are taking unduly long period to issue performance certificates to the refractory manufacturers which leads to delayed payments. The refractory industry hopes SAIL will address these issues.

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