Steel firms expect pick-up in domestic demand from July, led by auto sector

Housing sector demand yet to get back with construction activity being impacted by lockdowns and migration of workers

After a drop in domestic demand on the back of lockdowns following the surge in Covid-19 cases in India, steel companies are expecting a pick-up from July onwards.

T V Narendran, managing director and chief executive officer, Tata Steel, said, the automotive sector should pick up from next month.

“Construction should also pick up, but we are getting into the monsoon period when it slows down every year with or without the pandemic,” he added.

Jayant Acharya, director–commerce & marketing, JSW Steel, said, “We expect consumption to pick up from July onwards and pent-up demand to kick-in from H2. To meet that demand requirement, manufacturers will have to be prepared with necessary inventory restock.”

“The segments that are seeing a recovery are auto, consumer durables with dealerships and shops opening gradually. Infrastructure spend and activity is also visible in certain projects and states,” he added.

The automotive segment, in particular, is holding out hope for steel companies as carmakers are looking to ramp up production. "The stock levels in auto are down," pointed out, Ranjan Dhar, chief marketing officer, ArcelorMittal Nippon Steel India (AM/NS India).

A secondary steel producer, in fact, said that the company was facing a shortage of materials due to the sudden increase in car production.

The housing sector, however, was yet to get back as construction activity was impacted by lockdowns and also migration of workers.

Jindal Steel & Power (JSPL) managing director, V R Sharma, said, even as demand from the infrastructure segment was picking up, the housing sector was impacted.

Construction activity, typically, takes a hit during the monsoons. However, Dhar pointed out, “Construction demand normally tapers during monsoons. But last year, there was pent-up demand. That could very well replay this time too.”

Over the past year, the steel sector has seen a sharp recovery, taking prices to record high levels, largely driven by the infrastructure push across the world. That played out in the domestic market as well.

However, with the second Covid wave in India, domestic demand tapered and started dropping from March, as states went for localised lockdown. According to SteelMint data, production of non-alloy steel in March 2021 was at 10.03 million tonnes and stood at 8.50 million tonnes in May; domestic consumption was at 8.81 million tonnes and was at 6.66 million tonnes in May.

The uptrend in prices (flat steel), continued on the back of global prices that were higher compared to domestic. A strong international market also provided an outlet for companies to divert output in the wake of a lull in domestic demand.

An ICRA report earlier this month noted India-exported hot-rolled coil (HRC) as on May 1, 2021, was trading higher than Chinese export HRC prices at $950 a tonne and Indian steel exporters were earning better realisations in the export markets than close to $900 a tonne earned in the domestic markets.

Companies expect the uptrend to continue for a while. “We may likely be in a super cycle as far as commodities and materials are concerned. Economic activity will be led by the expenditure committed on physical, health, and social infrastructure by countries across the world,” said Acharya.

“Climate change and the need to control carbon emissions, is increasing outlay on renewable energy and electrification. This growth will fuel demand for materials and commodities in the medium to long term,” he further added.