Covid-19: Domestic steel consumption may remain ‘very weak’ in Q1FY21

In the wake of Covid-19 epidemic, domestic steel consumption is likely to remain “very weak” during the first quarter of 2020-21, dragging the overall consumption growth for the entire FY21 at just 2-3%, compared with 3.8% in FY20, rating agency Icra said on Friday.

Steel price for the April-June quarter is likely to decline by Rs 1,500 per tonne, Icra said. Domestic hot-rolled coil (HRC) price, which rose to Rs 38,000 per tonne from around Rs 32,500 a tonne in November, is likely to fall by Rs 1,500 per tonne given the choking of demand amid the lockdown.

“Margin improvement is unlikely in FY21; consequently, Indian steel industry’s debt protection metrics are likely to remain subdued in FY21. The industry’s operating margin is expected to weaken from around 21% in FY2019 to around 16.5% in FY2020 and around 16.0% in FY2021,” said Icra senior vice-president Jayanta Ray.

With the export market also remaining tepid, and incremental capacity addition of 10 million tonne, industry capacity utilisation rates are seen to be lower, from 81% in FY2020 to about 79% in FY2021, assuming a recovery in demand condition in the second half.

Weak domestic demand, which is likely to lead to an inventory pile-up, will exert pressure on steel prices. The key demand drivers for domestic steel demand – construction and infrastructure sectors, besides the automobile and capital goods sectors, continue to witness muted or a negative growth.

As far as exports are concerned, the rapid spread of the outbreak to countries other than China has disrupted the seaborne steel trade, and the same is likely to fall further amid the looming uncertainty surrounding the global growth.

During Q2 and Q3, a spurt in exports turned India into a net steel exporter. As for imports, increased scrutiny of shipments and the weakened rupee are expected to keep them low.