Indian Steel Industry in the post-COVID-19 World
The COVID-19 has disrupted operations globally is well-known. Moreover, the new normal that will emerge is likely to witness a realignment of power centres in different domains. The coronavirus crisis has impacted almost all supply chains dependent on China, which includes the steel sector.
Given the closure of operations in most industries, the nation’s steel demand in FY2020-21 is slated to fall by about 15%. This will lead to oversupply, suppressed prices and rising inventories once the lockdown is lifted, as per an India Ratings report. These inventories will mainly comprise intermediate or semi-steel items used by downstream players whose units are currently closed because of the lockdown. As a result, a vicious cycle will be created – where prices will remain depressed until there is a major uptick in demand or a sizeable inventory volume is offloaded.
Even after the lockdown is lifted, most likely in phases, the steel sector will continue confronting sustained challenges on account of the labour shortage and hampered logistics movement. The nationwide lockdown is an unprecedented test for every sector, including steel.
In the past few days, hordes of migrant workers have been returning to their hometowns. After the harrowing time they faced for weeks during the lockdown, most are unlikely to return soon. As companies seek to ramp up production for making up lost time, shortfalls in human resources will hinder such goals. But this represents one of the myriad challenges only. With the monsoons around the corner, it will impede the industry’s faster return to normalcy.
The biggest barrier, however, is the collapse of demand from various industries. As most consumers have postponed discretionary spending, there is muted demand in all industries, barring essentials such as groceries and FMCGs. Be it white goods, capital goods, automobiles and a host of others, the demand from consumers has plummeted.
Also, demand bouncing back quickly to pre-COVID-19 levels is unlikely soon. As many verticals have laid-off workers, placed some on furlough or announced salary cuts, the overall consumer sentiment is against any spending, except on essentials. Considering that COVID-19 is expected to stay on as a seasonal flu, the prospects of an economic bounce back will be tempered accordingly. Consequently, individual and institutional spending are bound to remain lacklustre for a year or so at least.
Under such circumstances, it is up to the government to boost infrastructure investments across the country. This can become a key driver for India’s eventual economic recovery. Such infrastructure projects need to be fast-tracked for the steel sector to stabilise operations after the demand slump.