New Delhi: The demand for steel in the country may go down by up to 25 percent in 2020 and for the first quarter of the ongoing fiscal (April-June), the demand would be a complete washout.
“In our baseline scenario, steel demand in India would contract 14-17 percent this fiscal. Extended vulnerability, on the other hand, will increase the demand contraction to 22-25 percent,” according to a report by CRISIL.
The car manufacturing plants have been shut in the country almost entirely and there is no respite from the capital goods industry in the current scenario which will lead.
A full-fledged pick up in demand will take much longer since he lower capex by government for the infrastructure sector will impact the demand for steel. Also, the building and construction sectors would contract in the ongoing financial year.
The demand pick up will take longer also because slower recovery in the automobile industry. The lower capacity utilization in the steel plants will also weigh on the capex plans of the industry, thus dampening the demands from the capital goods segment.
No capacity addition in the steel industry is likely in the current fiscal since the steel makers have postponed capex plans.
The lower demand for steel will push the capacity utilization in steel plants to about 67-70 percent. For the electric arc furnace and induction furnace steel markets, the capacity utilization will be even lower.
The capacity utilization was already quite low in financial year 2019-20 at 76 percent. Before the corona outbreak, about 10 million tonne of steel capacity was anticipated to be added in the second half of the current financial year.
The global prices steel is likely to continue to weaken. While China’s economic activity picked-up in March as compared to the month of February, steel demand in the Jan-March quarter of 2020 is estimated to have dropped 30-40 percent as compared to the same period of previous fiscal. This has caused very inventory levels of steel at about 100 million tonne.
Also, the export market for Chinese steel is almost non-existent since the other countries are fighting the corona pandemic, leading to a four percent fall in prices to USD 486 per tonne for the first quarter of the year.
The Chinese steel prices are likely to go down further because of weak demand and the steel prices globally are expected to touch USD 440-470 per tonne for 2020. This will be on 13 percent drop in steel prices in China in 2019. Chinese steel free-on-board prices continue to drop as the scenario worsens in other economies.