Rating agencies see 15-20% demand shrinkage in FY21

Steel Insights Bureau

Rating agencies like Icra and India Ratings expect steel demand contracting by anywhere between 15 and 20 percent on year during the current fiscal.

There would also be steel prices correction on the back of new capacity addition and inventory build-up especially of intermediate steel products with downstream facilities of most primary steel producers being shut during the lockdown.

Slackness in demand, migration of labour, timely availability of raw material and working capital availability remain some of the key challenges grappling end-consumers of steel.

Recent announcements on liquidity injection measures by the government and the Reserve Bank of India could partly help alleviate the interim stress for both steelmakers and end-users of steel tide over the ongoing phase of subdued economic activity.

Flat products segment, which was already facing headwinds prior to the lockdown, is likely to be more impacted than the long products segment, led by the weak demand conditions in the enduse industries such as automobiles, capital goods and white goods, due to consumers delaying discretionary expenses.

India Ratings

Demand contraction

India Ratings see demand contracting 10-15 percent on year in FY21 with governmentled spending necessary for demand revival.

The agency expects steel prices to correct over FY21, with an inventory building-up especially of intermediate steel products with downstream facilities of most primary steel producers being shut during the lockdown.

However, there could be certain temporary periods when prices may receive support due to lower production levels limiting supply as the economic activity resumes. Steel players will find some respite though from subdued raw material prices (both iron ore and coking coal).

With supply exceeding demand in the seaborne coking coal market, prices are likely to remain low. However, iron ore prices may gradually increase as Odisha iron ore mines gradually ramp-up, given the high auction premiums upon acquisition by new lessee, India Ratings said.