Covid fallout: Steel demand to fall 8 per cent this year, says ISA

The Indian Steel Association, the steel producers body, has estimated steel demand to decline 8 per cent to 94 million tonne (mt) this year against 101 mt logged in last year.

Interestingly, before the outbreak of the Covid-19 pandemic in February, the association had estimated steel demand to grow 5 per cent this year to 108 mt.

In all, the association expects growth in the consuming industries to remain in negative zone this year, before registering a recovery aided by a low base next year.

The steel demand forecast is based on three implicit assumptions including that the lockdown will end in 40 days; the government will come up with further fiscal stimulus, boosting demand and helping front-end stalled projects once the lockdown is lifted; and that the disruptions arising out of the lockdown will be overcome by early June.

If any of the three assumptions are not met, the downside risks of the forecast increases and fresh update on steel demand will be released in May, it said.

The economy was in the midst of a slowdown last year with tepid steel demand throughout the year.

Any meaningful steel demand recovery will take at least another month as overcoming challenges of getting migrant labourers back into manufacturing and construction zones, resetting disrupted supply chains and overcoming liquidity constraints particularly towards working capital needs, cannot be accomplished overnight, said ISA.

Both infrastructure and real estate developments — which account for the major chunk of steel use — were completely halted. Migrant workers are expected to return to construction work only after the monsoon ends.

In the automotive sector, the supply chain disruptions have further accentuated the sufferings with the steady fall in demand and higher inventory of BS-IV vehicles. Demand recovery in auto sector is expected to start only after the festival season.

The Railways has been a bright spot driven mainly by its capital expenditures in modernisation projects. However, the Railways may defer its capex this year as halted passenger services will dent its revenue earnings significantly.