Demand for steel in India is expected to contract in the FY2020-21, according to international credit agency Fitch Ratings. However, volumes should continue to improve over the next few quarters driven by rural consumption and government’s spending on infrastructure projects till 2022.

 

India’s crude steel output fell by 32.9pc from prior-year to 25.05mn t in April-July 2020 as per the Steel Ministry’s data. 

 

Following the nationwide lockdown, domestic market was completely shut in April and most part of May that brought steel consuming sectors like construction, capital goods and automobile to a stand-still. 

 

With the gradual resumption of business after lockdown was eased, demand recovery was seen in later part of May and June, especially in long products as prices were also firm. However, as the monsoon progressed, prices softened – a situation that is expected to last for a few months.

 

Iron ore prices reached $127/mt in global market due to supply crunch in Brazil along with strong demand in Chinese domestic market in the first half of 2021 which pushed steel prices and improved margins. Since April, China’s hot-rolled steel sheet prices have increased by around $100/mt and Indian steel prices picked up since late July by Rs2,500-3,000/mt .

 

It is expected that primary steel producers like Tata Steel, JSW Steel, JSPL and Sail will improve EBIDTA from Q2 FY20-21 onwards due to higher volumes and increase in margin. During Q1 (April-June), all primary steelmakers shifted their focus on exports to offset lull in domestic demand which impacted their realization and EBIDTA margins. 

 

However, companies are redirecting their attention to sales in the domestic market in Q2. Some producers have increased their capacity utilization to around 80-90pc since June.

 

Industry leaders also believe that post monsoon, whether steel demand in the domestic market will improve or not depends on how soon government projects kick-off. 

 

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