Re-allocating oxygen for medical purposes to take care of the rising Covid cases will have an adverse impact on small businesses in some sectors, domestic rating agency Crisil said on Wednesday.
It said the “hiccup” seems temporary for now, and it is unlikely to impact the credit quality of the affected businesses.
The impact will be greater for companies in Maharashtra, New Delhi, Rajasthan, Madhya Pradesh and Gujarat, where medical oxygen demand has increased multiple times because of high Covid-19 caseloads, the agency added.
The Centre has barred industrial use of oxygen except in nine designated sectors from Thursday onwards to divert the available stocks for life-saving medicinal use.
Demand for medical oxygen is estimated to have rocketed five-fold in the second week of April versus pre-pandemic levels as Covid-19 infections took off, Crisil Ratings said.
“The disruption in the supply of oxygen for industrial use would temporarily impact the revenues of small and mid-sized companies in metal fabrication, automotive components, shipbreaking, paper, and engineering,” its director Gautam Shahi said.
These sectors typically do not have captive oxygen plants and source their requirement through merchant suppliers for operations such as welding, cutting, cleaning and chemical processes, he added.
Setting up an air-separation plant or importing oxygen is not a viable option because it requires significant lead time and involves relatively prohibitive costs.
Oxygen is consumed by industry in two ways — on-site and merchant sales. On-site is through captive plants for process-driven industries, which account for 75-80 per cent of oxygen manufactured in India. The balance 20-25 per cent is supplied through merchant sales through cryogenic tanks and cylinders.