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.”
