Indian rating and research agency ICRA has revised its outlook for India’s steel industry to negative from stable citing early indications showing steel demand contractions in March and April this year of 22 percent and 91 percent respectively, an ICRA report said.
India’s domestic steel demand is expected to remain subdued until the Covid-19 pandemic is brought under control and this follows back to back extensions of the national lockdown until May 31, the report said.
“Quickly rebooting the steel industry from hibernation is going to be a tough task. The first half of 2020-21 is expected to be specially challenging for steel markets. Many buyers could prefer to sit on the sidelines, given the uncertain demand environment and liquidity pangs of steel consumers, amid dwindling sales and fixed cost obligations,” the report said.
“Moreover, despite higher borrowing levels of state governments that have been allowed subject to conditions, infrastructure spending by the central government could be partly deferred to next fiscal due to dwindling tax collections, limiting possibility of a sharp bounce back in steel demand post lockdown,” the report added.
According to ICRA’s analysis, steel demand hotspots are overlapping with Covid-19 hotspots, which could hurt the recovery of steel demand in the near term.
The key steel consuming states of Maharashtra, Gujarat, Delhi, Tamil Nadu, Andhra Pradesh Rajasthan and Punjab have sizeable populations living in districts marked as red zones. With around 51 percent of the urban population living in red zones, steel demand from the construction and real-estate sectors could take some time to return to the pre-Covid-19 levels, limiting the possibility of a steep rebound in domestic steel demand.
In addition, slackness in demand, migration of labor, timely availability of raw materials, and liquidity/working capital availability remain some of the key challenges facing end-consumers of steel, the ICRA report stated.