CORONAVIRUS: INDIAN STEEL INDUSTRY CAN GAIN FROM THE GLOBAL OUTBREAK

Wednesday, 22 April 2020 16:28

As the novel coronavirus spreads across the globe affecting over 200,000 persons with around 8,700 deaths reported to be caused by the Covid-19, businesses and economies are being adversely affected in an unprecedented manner.

Governments are hurriedly issuing advisories, announcing fiscal packages and banks are assisting in whatever ways they can to curb the fallout of the pandemic on business enterprises.

With China badly hit, all industries the country caters to globally, have also taken a beating. Take for instance the steel industry. Prices in China, which produces over half the world’s steel, have slumped like never before because the epidemic spread from China’s Wuhan.

With few buyers opting to purchase steel from the giant, an inventory has piled up, driving down the prices of steel globally. However, this could play to the benefit of the Indian steel industry in that people are looking for an alternative supply-chain market, especially for the manufacturing and auto components sector.

 

Steel manufacturers in India are saying that buyers across the globe are choosing not to be dependent on any one country for their purchases. Also, since the impact of the outbreak has been comparatively minimal in India, the steel manufacturing companies in India have not been adversely affected yet. Sectors like steel, housing and agri-businesses are still positive in India, experts say. The Automobile industry is the only one not showing signs of recovery, though it is said to start picking up by the second half of 2021.

 

The only aspect which remains related to the build-up of inventory in China is whether the stock will be consumed locally or exported. The price of steel has reacted to the build-up the most in South East Asia since there are fears that the stock pile will end up in the markets of South East Asia.

Experts claim that while there has been some pressure on steel prices in Europe and India, the prices have not yet dropped. Prices that could have kept increasing have slowed down in their increase slightly and a bush-pack is being experienced by the steel industry in India.

In fact, by some reports, Indian companies might face a pricing pressure of about $30 a tonne in April, May and June this year, rating agency India Ratings (Ind-Ra) said. However, the impact of the virus on prices can be determined fully only after major manufacturers like Japan, South Korea, and the US reveal how the demand-supply-chain has been affected in their geographies respectively.

The report stated, “China’s local steel demand has reduced drastically in Q120 (first quarter of 2020) creating an increased inventory pile-up of about 20 per cent year-on-year (y-o-y), leading to steel price pressures globally and restricting any major price increases in India over March 2020”. It further stated, “In a pessimistic scenario of the spread of virus going beyond April 2020 up to June 2020, China 2020 steel demand growth and global steel demand growth may be impacted by 200-300bp and 200bp (basis point), respectively”.