Hit by stringent Covid-induced lockdown, steel demand in this year is expected to fall by a record 10 per cent to 12 per cent despite early signs of greenshoot across consuming sectors. The fall in demand will also hit margins and put pressure on liquidity management in this fiscal year, according to a Brickwork Ratings report.

However, it said the steel market has started showing sluggish signs of recovery with demand revival in the rural economy and automobile sector along with increased levels of semi-finished goods exports in the last few months. The infrastructure sector is likely to contribute substantially in reviving steel demand led by government investment in the infrastructure sector.

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The government has announced investment into big-ticket infrastructure projects. In the long-term, the steel industry will witness high demand and significant growth as per capita steel consumption in India is much lower than most other countries in the world. The government’s support to rural income and expected consumption related to the upcoming festival season will help in substantial demand recovery for consumption-driven manufacturing goods in the second half of the fiscal.

An improvement in steel demand post monsoons had supported the rise in prices, but the overall operating margins for FY-21 will take a hit, leading to deterioration in the debt profile of steel players, which in turn will impact the financial sector, said the report. “The fast-tracking operations by all steel consuming industries should be accorded the highest priority to revive the steel sector,” it added.

The longevity of any recovery in the steel sector now depends on whether there is consistent new demand, both in India and from other countries, along with reforms introduced by the government for the steel sector.

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