ICRA comments on July 2020 Steel demand

Steel Plant

By Mr. Jayanta Roy, Senior Vice President, Group Head, Corporate Sector Ratings, ICRA Limited on July 2020 Steel demand.

“Steelmakers are poised for a sequential uptick in performance in Q2, aided by a gradually improving domestic demand and softer coking coal costs that would benefit blast furnace operators. The July 2020 official data indicates that even during a seasonally weak monsoon period, domestic steel demand sequentially increased by over 10% month-on-month, which suggests a gradual recovery of demand following the relaxation of nationwide lockdown. However, a return to the pre-COVID level of demand would take time, as steel consumption in July 2020 is still 29.06% lower than the same in July 2019.

In line with favourable international price trends, steelmakers announced multiple price-hikes of about Rs. 3000/MT in Q2 so far for hot-rolled coils. Additionally, a QoQ drop of $36/MT in coking coal prices is likely to more than offset the recent hikes in iron ore prices of close to Rs. 700/MT announced by merchant miners, and result in a sequential improvement in operating margins by about 5 percentage points in Q2 FY2021.

The steel industry’s capacity utilisation levels have steadily inched higher from the lows of 27% in April 2020 to 67% in July 2020, but are still lower than the last year’s average of 77%. The official data also points to lower exports in July 2020 compared to the previous month. If the trend continues, steelmakers would gain from higher sales volumes and a richer product mix, with the share of domestic sales gradually increasing and less remunerative exports gradually decreasing.”