Demand for domestic steel seems to be reviving in some way, with end users taking the first steps towards restarting operations, but a return to normalcy might still be a long way off. In the past couple of days, a number of automakers, including Maruti Suzuki, Hero MotoCorp, Mercedes Benz India, Eicher Motors, TVS Motor, and Isuzu Motors India, have announced they have got clearance from the government to resume operations.
Construction activities, too, have resumed, albeit in a staggered manner. In some pockets there is also demand for yellow goods. No doubt, between Lockdown 1.0 and 3.0, there has been an improvement in demand, but steel companies view this as too little.
Typically, construction accounts for 60-62 per cent of steel end-use and automobile 15-16 per cent. The demand that is coming back is mostly from auto components, fabricators and some government projects, say steel producers. But they point out that it’s not just a restart of activity at end-user level that is required; the value chain, which has completely collapsed, needs to be reconstructed for a significant pick-up in demand.
But a further increase in production is riddled with challenges. The major challenges are normalization of supply chain and production ramp-up at customer end, according to players. Officials at Steel Authority of India Ltd (SAIL) said things were starting to move. Customer meets were being held. But most of the demand currently was from government segments. Availability of labour continues to remain a challenge.
Jindal Steel & Power Ltd (JSPL) Managing Director V R Sharma pointed out that steel markets were still closed. “The MSMEs need to be allowed to function without permission.” With labour and supply chain pangs being felt across industries after more than a month and a half of the lockdown, the chorus for easing lockdown measures is getting louder.
Most analysts have forecast a high single-digit to double-digit contraction in demand for steel this year. The Indian Steel Association (ISA) forecast a demand contraction of 7.7 per cent last month on account of lockdown measures. However, till domestic demand makes a significant recovery, companies have turned to exports.