Steel demand in India is expected to decline 14-17 per cent this fiscal, as the construction activities likely to get further impacted due to the second phase of lockdown, rating agency Crisil said.
According to the agency, the lockdown will not just affect construction activities, but also automobile production, which will thereby impact steel demand. Given the uncertainty in the current environment, Crisil expects the steel demand to contract by 14-17 per cent for the fiscal considering that the nationwide lockdown is likely to continue through Q1 with some after effects in Q2.
“The demand is expected to contract by 14-17 per cent assuming that the construction and production activities will begin at the end of the first quarter,” the agency said. However, maintaining a pessimistic approach, assuming that partial lockdown continues through Q2 and construction activities and automobile production begin from Q2 FY21, demand contraction will increase to 22-25 per cent.
“On a quarterly basis, steel demand would be a washout in the first quarter of this fiscal, given the pan-India lockdown that would hurt construction. All automobile plants have also been shut, which will further weaken demand prospects,” the agency said.
Also, since there is also no respite from the capital goods industry in the current scenario, demand will pick up only from the second half of this fiscal, it noted. Crisil further stated that a full-fledged recovery will take longer because of weak demand from infrastructure on account of lower capex by government, as funds are diversion towards health and public welfare.
“Building and construction would contract this fiscal on account of weak demand from real estate and private individual home builders. Also, supply constraints for the automobile sector as well as muted demand with estimated gradual recovery only in the second half would lead to sluggish wholesale offtake,” the agency said.
Crisil further maintained that weakening capacity utilisation amid the virus outbreak would also weigh on industry capex, thereby dampening demand from the capital goods segment.
According to the agency, contracting demand growth will push the sector’s utilisation level down further to 67-70 per cent (to be lower for electric arc furnace/induction furnace players), adding to the pain from the weakening to 76 per cent seen in fiscal 2020. Prior to the outbreak, 10 million tonne of steel capacity was expected to come on board in the second half of this fiscal. On steel prices, Crisil noted that global prices will continue to weaken amid slack demand.
