Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

India’s steel demand is likely to fall by 10-15pc in the fiscal year 2021 ending in March from the prior year, on the back of slow economic growth, states India Ratings (Ind-Ra). The upcoming monsoon season is likely to hit demand for a couple of months. A persisting shortage of labour and logistical difficulties is already hurting the sector.


The agency predicts steel prices to be under pressure in the year with inventories stockpiled with primary producers, especially of intermediate steel products as downstream industries remained shut during the lockdown. Prices, however, may receive temporary support due to curtailed production limiting supply as economic activity slowly resumes.


Prices of steelmaking raw materials like iron ore and coking coal are also likely to remain low due to supply exceeding demand. But a possibility of iron ore prices rising cannot be denied given the high auction premiums paid for Odisha mines.


The flat products segment already faced challenges before the lockdown and is likely to be further impacted due to diminishing demand from the end-users like the auto sector, capital goods and white goods. The segment is likely to witness a prolonged recovery period. Demand for long products could improve sooner as the government plans to expedite spending on infrastructure.


The top-line of steel producers is likely to bottom out over in the first half of the financial year due to extended lockdown and seasonally weak Q2 FY2021. Recovery could follow in the second half of the fiscal year. Profits are likely to shrink by 20-30pc in FY21 and players could grapple with longer inventory and debtor periods for the next 6-12 months. Maintaining liquidity under such circumstances could get challenging.


Indian steel producers are exploring the overseas market to offset low domestic demand filling in the void left by China, Japan and Russia. At present, India’s cost of production remains competitive over Chinese steel, where raw material cost and environmental costs have been going up. Indian players are likely to be protected by anti-dumping duty on imports from China. Imports from free trade zones, however, could pressure domestic prices moderately.


For the revival of the steel sector, addressing key challenges like supply chain disruption and a labour shortage is of utmost importance. To ensure minimum manpower disruption, labour retention policies of each state would be critical.


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