ICRA anticipates construction activity in India to revive the supply chain, including long steel products. The investment firm noted that long steel will be a direct beneficiary of government spending both short- and medium-term.
The agency expects demand in rural and urban construction activities to surge for long products as recovery continues. State governments with about a 60pc contribution to total government capital expenditures have increased their investment commitments since December 2020. India’s National Infrastructure Pipeline (NIP) plan will also lead to sizeable demand for long steel.
Given the COVID-19 generated economic slowdown, demand has been mostly captured by larger steel manufacturers, leaving fewer opportunities for the small long steel producers. Smaller producers have also faced higher input costs compared to the larger producers and did not reap the benefits of the bonus from higher steel prices over the past year.
ICRA anticipates the reduction of iron ore prices in India, coupled with the increase in coking coal prices and capacity utilization recovery in smaller mills, will narrow the margin disparity between small and larger producers.
The agency also noted that the subsequent pandemic waves and lockdowns in different regions have been less disruptive of construction activity, injecting confidence in the sector’s ability to manage the uncertainty from pandemic-influenced policies.