May 19, 2020
ICRA revises steel industry outlook to negative, estimates demand fall of 20% in FY21
2020-05-20
Rating agency ICRA has revised steel industry outlook to negative from stable as back-to-back extensions of lockdown is likely to result in a severe steel demand slowdown which is estimated to fall by 20% in FY21, ICRA said in a statement on Tuesday.
“The first half of FY 2021 is expected to be challenging for steelmakers. Many buyers could prefer to sit at the sidelines, given the uncertain demand environment and liquidity pangs of steel consumers, amid dwindling sales and fixed cost obligations,” said ICRA’s senior vice-president, Jayanta Roy.
As per ICRA’s latest report on the sector, domestic steel demand is estimated to decline by upwards of 20% in FY 2021, which will be the sharpest fall on record. Data for March and April 2020, which points to a steep year on year (Y-o-Y) contraction in steel demand of 22% and 91% respectively. Consequently, the ratings agency’s outlook on the domestic steel industry has been revised to negative from stable.
Despite higher borrowing levels of state governments that have been allowed subject to conditions, infrastructure spending by the centre and states could be partly deferred to the next fiscal, due to dwindling tax collections currently, limiting the possibility of a sharp bounce back in steel demand post the lockdown, said Roy.
With around 51% of the urban population living in red zones, steel demand from the construction and real-estate sectors could take some time to return to the pre-Covid-19 levels, limiting the possibility of a steep rebound in domestic steel demand, as per ICRA’s analysis.
In addition, slackness in demand, migration of labour timely availability of raw materials, and liquidity/ working capital availability remain some of the key challenges grappling the end-consumers of steel.
Source: Economictimes
