Steel sector likely to improve with easing COVID-19 restrictions

During March 2020, the production of finished steel declined by 18.7 per cent to 6.745 million tonnes as against 8.3 million tonnes of the previous month as it got impacted by COVID-19, which resulted in lower demand from the user industries. Steel companies scaled down the production level in order to align with lower demand and also due to the stocks of inventories lying with steel companies.

A weakening trend in the consumption was evident since February 2020. The consumption of finished steel in March 2020 declined by 6.6 per cent to 7.325 million tonnes as against 7.84 million tonnes in the previous month. During March 2020, consumption was 0.580 MT more than the production of finished steel (8.6 per cent higher) as the gap was partly filled by inventories and imports of the same.

As India boards on its next trajectory of growth, powered by the government’s focus on building infrastructure for the future, creating smart cities, industrial corridors, and so on, the steel consumption in the country is likely to increase significantly. The nationwide lockdown imposed due to the COVID-19 pandemic led to a significant decline in the production and consumption of steel.

However, with relaxed norms, the sector is likely to show some improvement. Besides, the resumption of construction activities and the adoption of digital technologies would strengthen the demand for steel and make the Indian steel sector globally competitive. Meeting steel demand domestically and reducing import dependence may significantly improve employment prospects. It would also give a further boost to the growth of MSMEs in the steel sector and eventually, lead them to produce extra value-added products.

(Source: ACE Equity)