Construction activities have resumed, albeit in a staggered manner; in some pockets there is demand for yellow goods as well
Demand for domestic steel seems to be reviving in some way, with end users taking the first steps towards restarting operations, but a return to normalcy might still be a long way off.
In the past couple of days, a number of automakers, including Maruti Suzuki, Hero MotoCorp, Mercedes Benz India, Eicher Motors, TVS Motor, and Isuzu Motors India, have announced they have got clearance from the government to resume operations. Construction activities, too, have resumed, albeit in a staggered manner. In some pockets there is also demand for yellow goods. No doubt, between Lockdown 1.0 and 3.0, there has been an improvement in demand, but steel companies view this as too little.
Typically, construction accounts for 60-62 per cent of steel end-use and automobile 15-16 per cent. The demand that is coming back is mostly from auto components, fabricators and some government projects, say steel producers. But they point out that it’s not just a restart of activity at end-user level that is required; the value chain, which has completely collapsed, needs to be reconstructed for a significant pick-up in demand.
ArcelorMittal Nippon Steel India (AM/NS) has restarted many of its production units, including COREX, Conarc, hot strip mill, compact strip mill to ramp up production. Production at blast furnace, too, has been ramped up in line with demand.
But a further increase in production is riddled with challenges. A spokesperson for AM/NS India cited normalising supply chain and production ramp-up at customer end as major challenges.
Officials at Steel Authority of India Ltd (SAIL) said things were starting to move. Customer meets were being held. But most of the demand currently was from government segments. “Availability of labour remains a challenge,” said an official.
Jindal Steel & Power Ltd (JSPL) Managing Director V R Sharma pointed out that steel markets were still closed. “The MSMEs need to be allowed to function without permission.”
With labour and supply chain pangs being felt across industries after more than a month and a half of the lockdown, the chorus for easing lockdown measures is getting louder.
According to Sharma the current phase of lockdown should be lifted before May 17 and a Lockdown 4.0 would definitely be disastrous. “Consumption needs to pick up,” he said.
The wheels of the economy need to move, said another producer who did not wish to be named. “The restart is haphazard. At least e-commerce of non-essentials should be allowed. That will create some demand,” he added.
What was impeding the restart process was the level of clearance, the producer explained. The first layer is the guidelines from the Ministry of Home Affairs (MHA), followed by state-level tweaks and finally local-level clearances.
Most analysts have forecast a high single-digit to double-digit contraction in demand for steel this year. The Indian Steel Association (ISA) forecast a demand contraction of 7.7 per cent last month on account of lockdown measures.
However, till domestic demand makes a significant recovery, companies have turned to exports. JSPL has exported around 80 per cent of its output. Most other companies too have exported more than 60 per cent in April and May.