ICRA revised India’s steel sector outlook from stable to negative, with product demand expected to fall by 20pc in FY2021 because the COVID-19 pandemic has stunted the country’s economy.
The rating agency estimated domestic steel demand will decline by at least 20pc in FY2021—which concludes March 31, 2021—from 100mn mt in FY2020.
Steel demand in March and April 2020 declined by 22pc and 91pc, respectively. April crude steel output fell by 70pc to 2.8mn mt from a year ago, while finished steel declined by 85pc to 1.3mn mt. April output was cleaved by stay-at-home orders, which stalled business activity in the country. India’s domestic steel demand will remain subdued until the pandemic is under control, the agency added.
Jayanta Roy, ICRA’s senior vice-president and group head, said H1 FY2021 will be very challenging for steelmakers because demand has fallen sharply and their customers are struggling with liquidity. Consequently, steel buyers may be slow to fully reengage the market.
Federal agencies’ and states’ infrastructure projects could be partially deferred until the next fiscal year because of limited tax collection. State borrowing has also expanded to provide support, but lacking tax revenue makes large projects prohibitive.
ICRA noted that with 51pc of the urban population living in high steel-consuming states’ red zones, demand for the metal in the construction and real estate sectors will recover slowly. Moreover, India’s economic stimulus package heavily favoured the rural economy, which is traditionally less steel intensive, over the urban economy, and lending in the farm machinery sector should spike.
In addition to slow steel demand, timely raw materials access, available working capital, and labor migration remain key challenges for end consumers of steel.
In a report, Credit Suisse Wealth Management said India’s Rs 20 lakh crore fiscal stimulus package, which is worth $308bn, or nearly 10pc of its GDP, is devoid of short-term economic support and might not adequately restore the country’s growth.
India’s high debt-to-GDP ratio, expected to surpass 80pc this fiscal, cleaved personal incomes and corporate profits, and may erode both domestic and foreign investor sentiment, which could lead to financing shortages for larger capital projects.