A month of disrupted bulk industrial oxygen supply has left local companies scrambling to find alternatives, a development that has adversely affected production and spurred input costs.
The oxygen shortage has affected production at its Ngodwana wood pulp mill in Mpumalanga, resulting in a loss of 25,000 tonnes of saleable product, Sappi, the world’s largest maker of biodegradable wood pulp used as an alternative in the textile industry, said this week.
A number of its members have been affected, the Steel and Engineering Industries Federation of SA (Seifsa), which represents companies in the metal and engineering sector, said. In response to a survey, some businesses said they were at risk of running out of oxygen within 14 days. Others said the impact has been so severe that they have had to apply for extensions on projects or stop production altogether.
Oxygen is essential to a number of industrial processes, such as steelmaking, metals refining and fabrication, and even in gold extraction. Supply disruptions have persisted since the start of the year when demand for medical-grade oxygen from hospitals shot up in the second wave of the Covid-19 pandemic and two of the largest suppliers, Afrox and Air Liquide declared force majeure to industrial clients — in terms of a clause included in contracts to remove liability for natural and unavoidable catastrophes.
It is not the production of industrial oxygen that poses the challenge but the logistics. Specialised tankers needed to transport bulk oxygen have been diverted to supply the health-care sector. While industrial users do not disagree that saving lives should be prioritised, their businesses are taking immense strain.
Tom Cowan, head of MacSteel’s VRN business unit, a leading supplier of specialty carbon plate as well as stainless steel and aluminium products, said production has been adversely affected over the past month.
“It did hamper our production substantially — say 30% to 35%,” Cowan said. “We’ve had to devise some workarounds, but it was a lot slower and more expensive to do, and some specific jobs we couldn’t do. It was just impossible for us.”
Downstream consequences are likely, Cowan said. For example, “specific mining pieces of equipment couldn’t be built because the parts we had to cut for them couldn’t be cut,” he said. “It wasn’t only us, it was a phenomenon for the whole country.”
Macsteel VRN’s production has still not returned to normal levels.
Peter Elsemore, MD of PL Steel Services, said he has not received a delivery or any assistance from his oxygen supplier, Afrox, since December.
“One client tacked me onto his gas supplier’s account and I’ve been using gas bottles. That’s how we’ve limped along since then.”
The only problem, he said, is that the cost of gas in a bottle is almost four times that of bulk supply “So effectively my cost has rocketed by a factor of four. We can’t pass that on to the client, we have to absorb that. We are going to haemorrhage on profitability [but] the major thing is to keep the jobs and the customer.”
David Nurden, operations manager at HC Heat-Exchangers, a manufacturer of commercial and industrial refrigeration & air-conditioning equipment, said the business has scrambled for alternative supply.
The “drips and drabs” of supply have affected both production efficiency and equipment deliveries. Where the company has had to buy cylinders, it too has paid substantially more.
HC Heat-Exchangers manufactures equipment for essential services such as food processing plants and hospitals, including many new Covid-19 hospitals. “If we are not supplying the equipment that keeps these facilities running it’s also a problem,” Nurden said.
While the shortage has been hugely frustrating for the Macsteel business unit, Cowan said: “I don’t think anyone intentionally didn’t want to help”.
Elsemore and Nurden are more critical.
Finding alternative gas has cost HC Heat-Exchangers tens of thousands of rand in additional costs and the business, a customer of both Afrox and Air Liquide, does not believe the force majeure notices were justified.
“From our point of view their response to it has been less than satisfactory,” Nurden said. “Essentially they threw their hands up in the air and said ‘we can’t supply and that's that’ ... Yes, there is a moral obligation to supply hospitals, but it’s not as if there is a government directive to divert resources away from them, in which case they would have grounds for a force majeure.
“These are decisions that we feel they deliberately took as management teams and at the expense of their industrial customers.”
Elsemore said he does not object to prioritising hospitals but the customer service from Afrox has been poor. “They still can’t give us an unequivocal answer to when we are going to get product. They make promises and they never materialise. To me, they’ve destroyed our long-term relationship.”
Afrox referred Business Day to previous statements which said it was continually engaging with various stakeholders to optimise the supply chain and, separately, noted it is a “moral and ethical duty to put lives before livelihoods or profits”.
Air Liquide said it continues to monitor the Covid-19 situation closely as it evolves, and is adapting measures accordingly to ensure optimal support to its customers.
Seifsa chief economist Chifipa Mhango said strategic interventions and engagements with suppliers are required to salvage the crisis. However, he noted that oxygen supplies are expected to return to normal in the coming weeks as Covid-19 hospitalisation rates decline.
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