With the extended lockdown to contain the Covid-19 pandemic, demand for steel industry is expected to contract by 60-65% in the first quarter of fiscal year, according to a survey by rating agency CRISIL.
Steel manufacturers are focusing on managing liquidity and cash flows in the near future. Around 75% of the survey respondents indicated that they will extend support through incentives and extended credit cycle to downstream medium, small and micro enterprises to ensure business continuity.
More than 35% of respondents anticipate a demand contraction of over 15% for the fiscal year, and the fall to only ease gradually. However, demand is expected to recover from the third quarter with a return of migrant workers.
Government support by facilitating exports , along with tax and logistics concessions can help tide over the crisis, respondents said.
Prospects for steel consumption have dimmed due to the weak outlook for construction sector, which accounts for over 65% of steel demand in India. Most infrastructure projects will be deferred even after the lockdown is lifted, according to the survey.
No major support is anticipated from other sectors, including capital goods, due to weak industrial production and continued slowdown in automobiles sector due to cautious discretionary spending.
Demand growth for flat steel is expected to take longer to recover than long steel which is used in the construction sector.
Around 80% of the respondents said that the pent up demand for awarded or ongoing infrastructure projects especially in roads and railways will drive the recovery for long steel products.
Still, around a third of the survey respondents said that the steel capacity utilisation is expected to be no more than 50-60% in fiscal 2021, while another third saw it at 60-70%.
Besides a demand slowdown, the other key constraints that is hampering the steel sector’s outlook is logistic hurdles, labour shortage and a dearth of truckers.Around 45% of the steelmakers are also facing disruption in supply of raw materials like iron ore and coking coal.
The recovery in demand expected after the second quarter will have to be led by exports rather than the domestic sector. The gloomy demand scenario means that 87% of the respondents are planning to delay cap ex plans by more than a year, Crisil’s survey said.