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

Steel production in India is hit by the COVID-19 outbreak. Many small and medium scale furnaces across the country were shut even before March 24, while steel large producers cut production after the government announced a 21-day nation wide lockdown. India’s overall steel capacity utilisation could have dropped to around 50pc amid diminished end-user demand as the virus hit consumer spending and the economy.  


Primary steel producers are running operations despite challenges and have appealed government to facilitate the transportation of raw materials and goods under ‘essential services’ and allow plants to function with limited manpower. Sudden stoppage of blast furnaces can lead to huge damages to plant equipment and restarting them would be highly challenging. 


JSW Steel has scaled down production with the exception to steel manufacturing units, which need continuous operation. Tata Steel has shut its downstream standalone units in Maharashtra and Uttar Pradesh, though its main plants at Jamshedpur, Kaliganagar and Angul are operational. Also, the production at ArcelorMittal Nippon Steel India and Jindal Steel and Power is impacted by COVID-19 outbreak.  


Transport issues  

India’s Steel Ministry has asked government authorities to exclude the movement of raw material via rail, road and waterways from the lockdown. But because of operations difficulties and lack of coordination between government authorities many sponge iron makers that supply feedstock to electric arc furnace (EAF) and induction furnaces (IAF) have shut down. Transportation shutdowns have halted the movement of ferrous scrap and coal within the country. Shortage of materials have forced EAFs, IAFs and re-roller mills to suspend operations. 


Major Indian ports including Krishnapatnam port and Gangavaram port in Andhra Pradesh, Mundra port in western Gujarat declared force majeure further delaying shipment of imported raw material and dispatch of finished goods. 



Steel-consuming industries including automakers, component manufacturers and construction sites have halted their operations amid low demand and the virus lockdown. The auto and real estate sectors are expected to remain under stress given the economic slowdown caused by the virus outbreak. Auto sector consumed over 15pc of the steel produced in India, while construction and infrastructure sector consuming 60pc. The Extension in recovery of demand could lower domestic steel prices in the near terms and lead to inventory pile up resulting in more production trims, according to industry participants.  


Chinese inventories  

Global steel industry is poised to face a flood of steel exports from China. Indian steelmakers are expected to face stiff competition from low-priced steel exports from China. The Beijing government has hiked export rebates to 13pc from 10pc on cold-rolled steel, stainless steel strip and a large number of other steel products. Chinese finish steel inventories rose to record highs estimating to cross 100mn mt mark in the first quarter period. China is expected to export huge quantities of steel products in Q2 2020.    


Low demand situation would hurt domestic steelmakers liquidity position and could bring them to the brink of closure. Even integrated steel plants are under the risk of scaling down operations due to severe financials challenges. A lot is expected from the Indian government in terms of financial stimulus and loan repayment waivers to help steel industry tide over this crisis. 



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