India’s rating and research agency Icra states domestic steel consumption will remain weak in Q1FY21(April 1-June 30) and the recovery in demand is less likely before Q3FY21. The company has lowered India’s overall consumption growth for the entire FY21 to 2-3pc, down from 3.8pc recorded in FY20.
Indian steel consumption is estimated to drop to 20.5mn mt in Q4FY20 (Jan-Mar’2020) from 22.7mn mt in Q3 FY20 (Oct-Dec’2019), according to Indian government data.
Drop in consumer demand
Demand in the construction, infrastructure, automobile and capital goods sectors will continue to remain muted. Indian Steel Association anticipates that a recovery in auto demand is less likely before September. The 21-day COVID-19 lockdown in manufacturing will reflect in inventory pile up, exerting pressure on steel prices. Domestic steel prices for Q2FY21 are likely to drop by over Rs1,500/mt ($20/mt).
Given the pandemic and resulting lockdown, steel mills’ profit margins are less likely to improve throughout FY21. The industry’s operating margins could drop from 16.5pc in FY20 to16pc in FY21. In FY 19, operating margins were 21pc. Steel industry’s capacity utilisation rates are also likely to drop from 81pc in FY20 to about 79pc in FY21. An incremental capacity addition of 10mn mt per year and some recovery in demand is expected in the second half FY21.
In Q2 and Q3 FY20, steel exports surged sharply turning India into a net exporter for those six months. But subsequently exports declined in the following quarters. With the global outspread of COVID-19, Indian steel exports will remain subdued as seaborne trades in the world remain disrupted.
Imports are likely to remain low with the weakened rupee against US dollar which crossed the Rs76 against US$ 1 mark for a few days in March and increased scrutiny of shipments at ports.