Home >Industry >Manufacturing >Steel demand won’t recover till third quarter: Crisil

MUMBAI : Demand for steel in India is unlikely to recover till the third quarter of this fiscal, according to a survey of steel manufacturers by credit ratings agency Crisil. Nearly 60% of the respondents said they expected demand to recover from the third quarter, as infrastructure and construction activities gather pace, migrant workers return to work, and the fiscal measures taken by the government improve availability of funds.

About 33% of the respondents estimate utilisation to be 50-60% in fiscal 2021, while another 33% (including key integrated steel producers) see it at 60-70%. On aggregate, the respondents expect utilisation to be 66-68%, according to Crisil. Besides constraints such as the demand slowdown, logistic difficulties and labour shortage, a dearth of truckers and lack of labourers for loading/ unloading and movement of goods will impede transportation of raw material and finished goods.

Despite ports and mining activities being functional during the lockdown, 45% of the steelmakers had seen disruptions in raw material supply. Iron ore availability was the most impacted (indicated by 45% of the respondents).

The extended lockdown to contain the Covid-19 pandemic has dealt a telling blow to the steel industry. With construction and manufacturing brought to a standstill and the return to normalcy a distant proposition, the industry’s prospects have dimmed in line with the economy at large.

According to the survey, steel manufacturers are focussing on managing liquidity and cash flows in the near term to tide over an estimated contraction of 60-65% demand in the first quarter of fiscal 2021. The anticipated demand destruction has resulted in steelmakers taking a cautionary stance towards capital expenditure, with more than 75% respondents planning to either delay or altogether shelve their plans.

Prospects of the construction sector, which accounts for over 65% of steel demand in India, have dimmed considerably with the onset of the pandemic. The survey responses indicate most infrastructure projects will be deferred even after the lockdown is lifted. No major support in demand is envisaged from other sectors to replace construction, including capital goods, with weak industrial production, and continued slowdown in automobiles sector due to cautious discretionary spending

About 87% of the respondents feel there will be limited correction in steel prices – especially of HR coils – this fiscal. That’s because last fiscal had seen a substantial dip, and having incurred high costs due to low steel prices and a weak economy, the producers have limited scope to reduce prices further. Most importantly, weak realisations and a slump in sales volume due to the extended lockdown and subdued demand are expected to contract margins by 200-250 basis points on average, according to Crisil.

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