Steel companies grappling with inventory pileup

Steel companies across the country are facing troubling times as production continues but offtake has fallen drastically.

“Being categorised as an essential commodity, the steel companies are continuing production during the 21-day lockdown period. But there is hardly any offtake as construction activities are at a standstill. Plant capacity utilisation is much lower than usual, but whatever production is happening is just building up the inventory,” a steel company official said.

Cheap Chinese imports

India's total domestic steel production is to the tune of 100 million tonne a year. The sector has been struggling for the past few years as cheap Chinese imports have rendered the domestic industry uncompetitive. While domestic manufacturers claim that imported steel is of inferior quality, importers are seldom end-consumers and give preference to margins over such concerns.

“The blast furnace in a steel plant cannot be completely shut down so some amount of steel will continue to be produced even if there is nil offtake. This is currently being stored at the plant itself,” another steel company official said.

The Steel Authority of India, the country’s largest steel producer, has been noticing a demand slump because of Covid-19 since February itself. According to officials in the know, the slump in orders began in mid-February and by the second fortnight of March, orders almost dried up.

Manpower shortage

Steel plants across the country are running at half or less capacity during the lockdown with very sparse manpower.

“Even if we produce steel, there is not enough contract labour to actually move the product around. Despite our assurances to provide food and medical facilities, most of the labour has left for its hometowns,” the official said.

For stainless steel manufacturers, the situation is even more tricky. “Initially we did not know if we were being allowed to operate our plants during the lockdown. But when we do operate the plants, the industries that use stainless steel as raw material (utensil makers, for example) are not. This is leading to an inventory build-up and the sector may take at least two quarters to recover from this hit,” an official representing one of India’s largest stainless steel manufacturers told BusinessLine .

According to a research note by CARE Ratings, as the coronavirus outbreak becomes more pandemic, it may put a stop to the rally in domestic steel prices which is already evident in international steel prices that have sharply declined from January highs. The pricing power of domestic steel producers may be impacted, going ahead.

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