The rating agency ICRA has revised its domestic steel sector outlook to negative as demand likely to fall by record 20% in FY21. According to official data, India consumed 100 million tonne of steel during financial year ended March 2020.
“Early indications of an unprecedented demand slowdown visible in data for March and April, points to a steep year-on-year contraction in steel demand of 22 percent and 91 percent, respectively.
The domestic steel demand is estimated to decline by upwards of 20 percent in 2020-21, which will be the sharpest fall on record,” ICRA said.
Consequently, the outlook on the domestic steel industry has been revised to negative from stable as the domestic steel demand is expected to remain subdued until the COVID-19 pandemic is brought under control.
The challenge to bring back the Steel industry from deep freeze will be a huge task in the absence of serious buyers. The demand will be subdued and liquidity pangs of steel consumers, amid dwindling sales and fixed cost obligations.
The Agency said that despite higher borrowing levels of state governments that have been allowed subject to conditions, infrastructure spending by the Centre and states could be partly deferred to the next fiscal due to dwindling tax collections currently, limiting the possibility of a sharp bounce back in steel demand post the lockdown.
Key steel consuming states like Maharashtra, Gujarat, Delhi, Tamil Nadu, Andhra Pradesh, Telangana, Rajasthan and Punjab have a sizeable portion of their population living in districts marked as red zones, and with around 51 percent of the urban population living in red zones, the steel demand from the construction and real estate sectors could take some time to return to the pre-COVID-19 levels, ICRA said.
In addition to slackness in demand, the migration of labour, timely availability of raw materials, and liquidity/ working capital availability remain some of the key challenges grappling the end-consumers of steel. The challenges could also affect the operating profitability and debt protection metrics of steelmakers in 2020-21.