Indian domestic steel producers are likely to be negatively impacted during the first quarter of 2020-21 by the Covid-19 pandemic and the 21-day national lockdown that started on March 25, according to ICRA, a rating and investment information service firm.
According to a note prepared by ICRA, domestic steel producers will face challenges from weak domestic demand, which is likely to lead to an inventory pile-up, exerting pressures on prices.
“Covid-19 and slowing Chinese demand will affect global steel demand-supply balance in the near term. Healthy Chinese production growth had kept global steel production growth at 3.4 percent in 2019 but the demand destruction in other geographies is expected to halt the growth globally. China’s steel exports is expected to remain low due to the outbreak spreading in other geographies despite a recent increase in export rebates,” Jayanta Roy, senior vice president and group head, ICRA, said.
“In the Indian scenario, the outbreak and the national 21-day lockdown will keep both production and consumption in check in the first quarter of 2020-21 fiscal. The key demand drivers for domestic demand - construction and infrastructure sectors besides automobile and capital goods - continue to see muted or negative growth,” he said.
As for exports, ICRA maintained that the rapid spread of the virus and outbreak in countries other than China have disrupted seaborne steel trade and it is likely to fall further amidst the uncertainty surrounding global growth. During the second and third quarters of the 2019-20 fiscal year, a spurt in exports turned India into a net steel exporter. As for imports, increased scrutiny of shipments and the weakened Indian rupee meant that they have been low.
On the demand outlook, the ICRA note said that it does not expect a rebound in steel consumption growth in 2020-21. As against growth of 3.8 percent during 2019-20, consumption growth is likely to settle at 2-3 percent during 2020-21.
While exports from India will remain tepid and given an incremental capacity addition of 10 million mt, industry capacity utilization rates are seen to be lower from 81 percent at present to 79 percent during the next fiscal year, assuming a recovery in demand conditions emerges in the second half of the fiscal year, the ICRA note said.