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ISA Expects 7.7% Drop in Steel Demand in India in 2020

Steel News - Published on Mon, 20 Apr 2020

The Indian Steel Association has revised downwards India’s steel demand growth forecast for 2020, keeping in view the impact COVID-19 pandemic has had on the economy. ISA said “From 5.1 percent, as per growth predictions made in February this year, the demand figures are expected to touch a low of -7.7 percent, with significant downside risks. We estimate finished steel demand in India to fall in calendar year 2020 to around 93.7 million tons from an estimated actuals of 101.5 million tonnes in 2019, a decline of 7.7 percent or roughly by about 8 million tonnes this calendar year.”

ISA said “By the third week of March, this began impacting India’s economic activity. A nationwide mandatory and complete lockdown for 21 days was announced on March 25, which was subsequently increased to 40 days. Economic activities have come to a standstill but are expected to restart in a staggered manner after April 20. It is expected that any kind of demand recovery will take at least another month as overcoming challenges in the form of getting migrant labourers back into manufacturing /construction zones, resetting disrupted supply chains and overcoming liquidity constraints, particularly towards working capital needs, cannot be accomplished overnight.”

It said “A recovery is expected to remain weak due to the lesser availability of migratory construction workers. Most workers are also participants of the agrarian economy and are expected to participate in farm activities in the upcoming harvest season as also in the sowing season. Only after the monsoon ends and the workers return to the cities and construction sites, can we expect any reasonable pick-up in construction activities. With regard to the automotive sector, supply chain disruptions, both abroad and within the country, have further accentuated the sufferings of the automotive sector which had already been hit hard due to a falling demand, month-on-month, coupled with unsold BS IV inventories. A demand recovery is expected to be slow and gradual until the beginning of the festive season. Similarly, the machineries sector is expected to see continued decline due to weaker private investment, fragile export demand and halted projects in renewable energy, construction and mining. The railways sector has been the one bright spot in the last few years, in terms of growth and steel use, mainly driven by its capital expenditures in modernisation projects and record production of rolling stocks. However, the Indian Railways is likely to defer its capex expenditures this year as halted passenger services will dent and impact its revenue earnings significantly. This will affect growth in steel use, negatively.”

The steel demand forecast has three implicit assumptions that the lockdown will not be extended beyond 40 days, the government will come up with further fiscal stimulus, boosting demand and helping frontend stalled projects once the lockdown ends, and that the disruptions and challenges arising out of the lockdown will be overcome by early June. If any of the three assumptions are not met, the downside risks of the forecast increases.

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Posted By : Yogender Pancholi on Mon, 20 Apr 2020
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