Steel Industry May Face Inventory Pile Up Amid COVID-19 Lockdown

The latest casualty of the 21-day nationwide lockdown to contain the deadly COVID-19 may be the domestic steel makers, who are likely to be adversely impacted in Q1 FY2021.

According to an ICRa note, local companies may face challenges including weak domestic demand. This will result in inventory pile up and therefore exert pressure on steel prices.

While coronavirus cases have slowed down in China, where the virus originated last December, the cases are steadily increasing outside the mainland. This will keep the seaborne demand muted until the health situation improves.

March this year has seen the seaborne hot rolled coil (HRC) export price offers decrease for want of buyers. Although, the big companies have continued production even during the loakdown period because of the high shutdown costs.

According to Jayanta Roy, Senior Vice President and Group Head, ICRA, "The Covid-19 and slowing Chinese demand will affect global steel demand-supply balance in the near term. Healthy Chinese production growth had kept global steel production growth at 3.4 per cent in CY2019 but demand destruction in other geographies is expected to halt the growth globally. China's steel exports are likely to remain low due to outbreak spreading in other geographies despite a recent increase in export rebates."

"In the domestic scenario, the outbreak and nationwide 21-day lockdown will keep both production and consumption under check in Q1 FY2021. The key demand drivers for domestic steel demand - construction and the infrastructure sectors, besides the automobile and capital goods sectors, continue to witness muted or negative growth.”

ICRA has noted that exports may plummet due to the looming uncertainty around global economy. Increased scrutiny of shipments and weakened rupees are expected to keep exports low.