Steel demand to contract 7.7% in 2020 over coronavirus crisis: ISA

The Indian Steel Association (ISA), which represents major public and private sector steel companies, has forecast that steel demand would contract 7.7 per cent in 2020 in the wake of measures taken to contain the spread of Covid-19 pandemic.  

This is in sharp contrast to the earlier projection of 5.1 per cent growth made just a couple of months back, in February. ISA said that its earlier estimate was that steel demand would touch 106.7 million tonnes. The estimated actual in 2019 was 101.5 million tonnes in 2019.

"We have now revised the steel demand forecast to 93.7 million tonnes. In other words, we estimate that the spread of the pandemic and subsequent lockdown will lead to steel demand declining by 13 million tons or by 12.2 per cent from a business as usual scenario," the association said in a statement.

ISA has cautioned that its demand forecast was based on three implicit assumptions -the lockdown will not be extended beyond 40 days; that the government will come up with further fiscal stimulus, boosting demand and helping frontend stalled projects once the lockdown ends; and that the disruptions and challenges arising out of the lockdown will be overcome by early June.

"If any of the three assumptions are not met, the downside risks of the forecast increases," the association said.

The pandemic surfaced in India just when a rebound, in both manufacturing and the services sector, was beginning to take root, ISA pointed out.

"By the third week of March, this began impacting economic activity. A nationwide mandatory and complete lockdown for 21 days was announced on March 25, 2020, which was subsequently increased to 40 days. Economic activities have come to a standstill but are expected to restart in a staggered manner after April 20, 2020," it said.

However, ISA expects that any kind of demand recovery would take at least another month as overcoming challenges in the form of getting migrant labourers back into manufacturing / construction zones, resetting disrupted supply chains and overcoming liquidity constraints particularly towards working capital needs, cannot be accomplished overnight.

Most of the major steel companies were currently operating at 30-50 per cent production levels. The scaling down of operations started after the lockdown when user industries started suspending operations.

ISA said that the lockdown, which undeniably was the need of the hour, was also one of the severest responses to Covid19 worldwide and had singularly led to depressed demand across sectors.

ISA expects recovery in construction, both infrastructure development and real estate, to be weak due to lesser availability of migratory construction workers.

"Most workers are also participants of the agrarian economy and are expected to participate in farm activities in the upcoming harvest season as also in the sowing season. Only after the monsoon ends and the workers return to the cities and construction sites can we expect any reasonable pick up in construction activities," the association pointed out.

The automotive sector was facing supply chain disruptions both in India and abroad and the demand recovery in this segment is expected to be gradual until the beginning of the festive season.

Typically, 60-62 per cent of steel end-use mix is accounted for by construction while 8-10 per cent of demand comes from automobile segments.

 ISA expected the machineries sector to see continued decline due and Indian Railways to defer its capex expenditure this year.