Recovery in Steel Demand to be Delayed on Lockdown Extension
ICRA Revises Outlook for Domestic Steel Industry to Negative from Stable
The recovery in steel demand is expected to be delayed with the extension of the country-wide lockdown up to May 31.
Early indications of a slowdown were visible when steel demand fell 22 per cent and 91 per cent in March and April respectively.
Per the latest ICRA report, domestic steel demand is estimated to decline over 20 per cent this fiscal, which will be the sharpest fall on record. Consequently, the ratings agency’s outlook for the domestic steel industry has been revised to negative from stable.
Jayanta Roy, Senior Vice-President, ICRA, said rebooting the steel industry will be a tough task with the first half of the current fiscal being the most challenging for steelmakers.
Many buyers may prefer to sit on the sidelines, given the uncertain demand environment and liquidity pangs, he said.
Moreover, despite higher borrowing levels for the State governments, infrastructure spending by the Centre and States may be partly deferred to the next fiscal, due to dwindling tax collections, limiting the possibility of a sharp bounce back in steel demand post the lockdown, he added.
The overlap in ‘hotspots’ of both the steel demand and that of Covid-19 may further hurt the recovery of steel in the near term.
Key steel-consuming States such as Maharashtra, Gujarat, Delhi, Tamil Nadu, Andhra Pradesh, Telangana, Rajasthan and Punjab have a sizeable portion of their population living in districts marked as red zones.
With about 51 per cent 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 levels.
Unlike investment-led stimulus, the ₹20-lakh crore Covid package announced by the government may not lead to an immediate rebound in demand as it is largely targeted at providing relief to the social sector.
Roy said steelmakers are focusing on less-remunerative exports to China, West Asia, Vietnam and other South-East Asia countries as domestic demand has dried up.