Steel demand in India is expected to remain under pressure due to a steep rise in COVID-19 cases. India’s demand for steel contracted by 91pc in April as compared to a year ago as downstream consumers of steel struggle with shortage of labour and liquidity crunch.
Many steel companies and downstream industries are located in states that have higher virus cases like Maharashtra, Delhi, Gujarat, Tamil Nadu, Punjab, Telangana. These regions are still under some level of lockdown since March 24. The four-phased lockdown is expected to end on May 31.
Shortage of labour, liquidity crunch and non-availability of raw material in the local market are the key challenges faced by the end consumer of the steel. However, governments measures to inject liquidity could partially alleviate the interim stress for both steelmakers and end-users. Fresh allocation of Rs70,000 crore to the Credit Linked Subsidy Scheme (CLSS) could stimulate steel demand over the short term.
Domestic steel demand could decline further in FY2020 and slowly recover in FY2021 if the lockdown is not extended further, said a steelmaker in southern India. Steelmakers are focusing more on exports at lower margins to run their operations in this challenging time.
Local markets are short of scrap supplies as import shipments are still stuck at the ports due to liquidity issues and non-availability of road transport.
One of the major consumers of steel, the automobile industry is also facing several headwinds as auto sales are subdued. Automakers are pushing for government support in terms of incentive and monetary aid to revive auto sales.
Large and integrated steel mills with adequate liquidity are able to continue production, albeit, at 30-60pc capacity. Access to export markets is helping these steelmakers to operate seamlessly despite the crisis in the domestic market.