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Steel demand is expected to fall 25 per cent this fiscal as the Indian and global economy struggle to recover from the destruction caused by the Covid pandemic.
This apart, the economy is grappling with the lockdown, reduced discretionary spending and a delayed capex cycle.
“We expect the perfect storm to affect construction activities and automobile production, and thereby steel demand. Based on our analysis of the spread and containment period of the pandemic, we expect steel demand to contract 14-17 per cent this fiscal,” Crisil Research said in a report.
However, the extended vulnerability will increase the demand contraction to 22-25 per cent during the financial year, it added.
In the June quarter, steel demand would be washed out by the pan-India lockdown. All automobile plants have also been shut, which will further weaken demand prospects, it said.
The contracting demand will pull down steel companies’ utilisation level to 67-70 per cent in this fiscal, against 76 per cent logged in FY 2020.
An additional capacity of 10 million tonnes expected to go on stream in the first half of this fiscal will be delayed.
Prices dip
Weak steel demand is expected to pull down global prices. Demand in the March quarter is estimated to have declined 30-40 per cent even as economic activity picked up in China in March after the Covid-induced slump in February.
The slump in demand has led to high inventory levels of 100 million tonnes. Steel export from China has come to standstill as other economies grapple with Covid, leading to a 4 per cent year-on-year fall in prices to $486 per tonne in the March quarter.
China steel prices are expected to fall further owing to the weak demand, taking global steel prices to $440-470 a tonne in 2020.
While global hot-rolled coil prices are expected to contract by 6-8 per cent, rupee depreciation and anti-dumping duty levied on imports from China will thwart a free fall in domestic steel prices.
The decline would be limited to 3-5 per cent for flat steel since there was a massive slump in prices in fiscal 2020.
Long-steel prices will decline 6-8 per cent in this fiscal, with secondary players lowering their offers in response to weak demand prospects amid competition.
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