Around 80 per cent of the participants in the survey feel that pent up demand from awarded or ongoing infrastructure activities, especially roads and railways will drive recovery for long steel and galvanised products. Despite the anticipated slowing of the pace of the construction of national highway from an average of 11 kilometres (km) per day in FY20 to nine km in FY21, roads are billed as the frontrunner to revive
Some uptick is also seen in real estate activity in the near term.
Amid demand erosion, capacity utilisation of the steel industry is tipped to fall to 66-68 per cent in FY21. Respondents in the survey are grim on demand for revival of flat steel. By contrast, demand for long steel will gain momentum with pick up in construction activities.
Overall, the weakness in end use industries will shrink steel demand
by 13-15 per cent this fiscal.
“Prospects of the construction sector, which accounts for over 65 per cent of steel demand
in India, have dimmed considerably with the onset of the pandemic. The survey responses indicate most infrastructure projects will be deferred even after the lockdown is lifted. The reasons include labour shortage due to reverse migration, and lower infrastructure spending due to funding constraints of central and state governments on account of lower tax collections and focus on social sectors. No major support in demand is envisaged from other sectors, including capital goods, with weak industrial production, and continued slowdown in automobiles sector due to cautious discretionary spending”, the report by Crisil noted.
The anticipated erosion in demand has led to steel manufacturers sharpening caution on Capital expenditure (Capex). More than 75 per cent of those who took the survey are planning to either delay or shelve their Capex plans. According to the survey’s findings, steel companies are leaning on incremental government support for facilitating exports along with tax and logistics concessions to tide over this crisis engendered by Covid-19 pandemic. Three fourths of the survey participants advocate offering support through incentives and extending credit cycle to MSMEs (micro, small & medium enterprises) channel players to ensure their business continuity.
Besides demand slowdown, logistics constraints and labour shortage would impede capacity utilisation. Even though ports and mining activities continued normally during lockdown, disruptions in raw material supplies stalked 45 per cent of the steel makers. Iron ore supplies were the hardest hit followed by coking coal.
By government classification, steel comes under the rubric of ‘essential commodities’. However, several steel players had to force shutdown of their blast furnaces during lockdown. Steel players expect production to stabilise after Q2 of this fiscal, aided by focus on export markets till domestic demand perks up.