Inventory pile-up to hit steel cos profit

Our Bureau Mumbai | Updated on March 27, 2020

The profit of steel companies is expected to be badly hit in March and June quarter due to the Covid-19 pandemic and the 21-day nation-wide lockdown. Weak domestic demand will lead to building up of inventories exerting pressure on steel prices.

Though China has reported lesser number of Covid cases in recent weeks, globally, there has been a spike this month. The development will keep seaborne demand muted until the health situation improves. The seaborne hot rolled coil export price offers have plummeted in March for want of buyers. However, most large domestic steel-makers have continued production during lockdown.

Jayanta Roy, Senior Vice-President and Group Head, ICRA, said the Covid-19 and slowing Chinese demand will affect global steel demand in the near-term.

Despite a recent increase in export rebates, China’s steel exports are likely to remain low due to the outbreak spreading in other geographies.

In the domestic scenario, the outbreak and nation-wide 21-day lockdown will keep both production and consumption under check in June quarter, he said.

The key demand drivers for domestic steel demand — construction and the infrastructure sectors, besides the automobile and capital goods sectors — continue to witness muted or negative growth, Roy added.

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

The rally witnessed in domestic steel prices since last November may come to a halt owing to the pandemic. Domestic HRC prices stood at ₹38,000 a tonne in March.

On the demand outlook, ICRA does not expect a rebound in steel consumption next fiscal. As against a growth of 3.8 per cent in FY20, consumption growth is likely to settle at around 2-3 per cent in FY21, it said.

Published on March 27, 2020

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