The Bazargaon blast last Friday has raised concerns among industry players about the intense price war in the explosives business. The manufacturers often operate in a cartel, which does not last long though, due to steep fall in rates. Cut throat competition after the cartel breaks leads to manufacturers offering the product at the cheapest possible rates, especially to the coal sector, which is the biggest consumer.
Under-cutting is also used as a strategy by bigger units with the capacity to absorb losses, to throw smaller player out of the business. However, the price war also forces explosive makers to save on other counts, like security and quality, say sources in the industry.
Public sector miner Coal India Limited (CIL) is the biggest customer for explosives, accounting for annual purchases worth over Rs 1,200 crore. Every firm is keen to bag a CIL deal at any cost. Since over a year, rates offered to CIL are much lower than even the cost of just one key raw material, ammonium nitrate. This makes up almost 65% of the finished product.
"A ton of ammonium nitrate costs Rs 20,000 but explosives supplied to CIL and the coal sector are priced at Rs 17,000 to 18,000 a ton," said a source. Big players can bear the loss and also recover it from sales to the other sectors, where the rate is not less than Rs 40,000 a tonne.
Other buyers include quarries, cement sector, construction and highway building sites. CIL is the mainstay for every explosive-maker, which accounts for at least 50% of the turnover, and there are some units which entirely depend on this PSU, said a source. Around a couple of years ago, explosives were priced at Rs 26,000 a tone and ammonium nitrate was available for Rs 15,000, since a cartel was in force at that time.
Units which solely depend on the coal sector have to cut down other expenses, which includes security. Petroleum and Explosives Safety Organisation (PESO), the industry regulator, is constrained to conduct inspections due to acute shortage of manpower. There are chances that the irregularities may go unnoticed due to this, said a source. The workers in the business are also known to be paid poorly.
The Bazargaon incident has left explosive makers apprehensive about PESO coming up with stricter regulations, especially those related to handling of ammonium nitrate. There are speculations that ammonium nitrate could have been the reason for the blast, though blasts can occur due to any number of very complex reasons.
Under-cutting is also used as a strategy by bigger units with the capacity to absorb losses, to throw smaller player out of the business. However, the price war also forces explosive makers to save on other counts, like security and quality, say sources in the industry.
Public sector miner Coal India Limited (CIL) is the biggest customer for explosives, accounting for annual purchases worth over Rs 1,200 crore. Every firm is keen to bag a CIL deal at any cost. Since over a year, rates offered to CIL are much lower than even the cost of just one key raw material, ammonium nitrate. This makes up almost 65% of the finished product.
"A ton of ammonium nitrate costs Rs 20,000 but explosives supplied to CIL and the coal sector are priced at Rs 17,000 to 18,000 a ton," said a source. Big players can bear the loss and also recover it from sales to the other sectors, where the rate is not less than Rs 40,000 a tonne.
Other buyers include quarries, cement sector, construction and highway building sites. CIL is the mainstay for every explosive-maker, which accounts for at least 50% of the turnover, and there are some units which entirely depend on this PSU, said a source. Around a couple of years ago, explosives were priced at Rs 26,000 a tone and ammonium nitrate was available for Rs 15,000, since a cartel was in force at that time.
Units which solely depend on the coal sector have to cut down other expenses, which includes security. Petroleum and Explosives Safety Organisation (PESO), the industry regulator, is constrained to conduct inspections due to acute shortage of manpower. There are chances that the irregularities may go unnoticed due to this, said a source. The workers in the business are also known to be paid poorly.
The Bazargaon incident has left explosive makers apprehensive about PESO coming up with stricter regulations, especially those related to handling of ammonium nitrate. There are speculations that ammonium nitrate could have been the reason for the blast, though blasts can occur due to any number of very complex reasons.
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