After relaxation in lockdown guidelines it seems the steel sector is going through an upswing phase, what is your current take on the steel sector? How will be demand offtake in the remaining quarter of the current financial year?
In the initial phase, the Indian steel sector benefited from an upswing in international prices, largely because of the strength of China's steel consumption and restricted supplies. Large domestic mills maintained capacity utilisation rates by exporting finished steel as well as semis. However, in the second half of the year post the rainy season, we expect further tailwinds for demand conditions on the back of an expected revival in construction activities and some segments of the automobile and consumer durable segments.We expect steel demand to gradually catch up with the pre-Covid levels in Q4 of FY2021. However, for the year as a whole, consumption will be significantly lower than that of FY2020 because of the decline in the first half.
What is your assessment for the next financial year 2021-22 for the steel sector? Where will the maximum demand for the industry come from?
We expect steel consumption in Q4FY2021 to be largely in line with the same period of FY2020. Thereafter, demand will grow at historical trend rates unless there is a major push by the government in the infrastructure sector. Nevertheless, mathematically, consumption growth in FY2022 will be very healthy, given the low base of FY2021.We expect domestic steel demand to contract by over 20% in FY2021. So, if you add even a 5% growth over the FY2020 consumption level, you'll see a growth of over 25% in FY2022.
The steel industry is going through a consolidation phase. How beneficial is this for the growth of the steel sector?
Most of the consolidation has taken place recently through larger companies acquiring stressed steel companies through the IBC process. This would help the sector as a whole since those weaker companies will benefit from access to technology, operating efficiencies and governance practices of the stronger acquiring companies.
Though Indian steel industry has shown tremendous progress, the latest being JSPL’s contribution in manufacturing world-class rails for high-speed trains including bullet trains, it still has a long way to go to flood the world market. Your take on this.
Indian steel cannot flood the world market for the simple reason that there won't be enough capacities left after meeting domestic demand. There is no greenfield capacity which is expected to come up in the next 3-4 years, except the plant of NMDC.In terms of technical capabilities, India can develop high end steel, given that leading companies in the world have bases in India either directly or through equity participation in domestic companies.
What are the challenges faced by the industry?
The near term challenges would include the possibility of a second wave of Covid-19 and resumptions of lockdowns, delays in kickstarting large projects because of paucity of funds, liquidity pressures for small and medium sized secondary players and a tightness in iron ore availability. The key challenge over the medium term would be weak financial health of most of the players, given their leveraged balance sheets.
How does the remedial ‘anti dumping duty’ imposed by the government for cheap import of steel benefits / affects India steel sector in the long run?
The anti dumping duty was imposed several years back to protect the domestic industry from dumping. It ensured a minimum import price for steel, and heled domestic companies. However, at current price levels, anti dumping duty is not applicable. Anyway, the same will be there till the middle of FY2022 only (August 2021), and after that domestic companies will have to face competition from imported steel.