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Steelmakers Expect Double-Digit Dip In Demand, Revival Only In Q3 FY21: Crisil

A majority of steelmakers are bracing for a double-digit dip in demand as construction and manufacturing activity froze following the nationwide lockdown to contain the Covid-19 pandemic. A revival may be more than a quarter away and will be driven by infrastructure projects. That’s according to a Crisil Research survey of senior management at steel companies and industry experts. Here are its key takeaways:
- Steelmakers are focusing on managing liquidity and cash flows in the near term to tide over a demand contraction of nearly 60-65% in the first quarter of the ongoing fiscal.
- Three-fourths of respondents said they may extend support through incentives and extended credit cycles to MSMEs and downstream sales channel players to ensure business continuity.

- More than a third of industry respondents anticipate demand to contract by over 15% for the fiscal, with the free-fall arrested gradually. Nearly 60% of the respondents expect demand to recover in the third quarter.
- Steelmakers are cautious over capital expenditure, with more than three-fourths of respondents planning to either delay or altogether shelve their plans.
- Respondents said incremental government support towards facilitating exports, along with tax and logistics concessions, can help them tide over the crisis.

Respondents were more pessimistic about a rebound in demand for flat steel—it’s used by makers of appliances to cars. Demand for long steel is expected to recover rapidly once construction activity resumes, the survey found.
Nearly 60% of the respondents expect demand to recover from the third quarter ending December, as infrastructure and construction activities gather pace, migrant workers return to work, and the fiscal measures taken by the government improve availability of funds.
Around four-fifths of respondents said pent-up demand from awarded or ongoing infrastructure projects, especially roads and railways, will drive recovery. Minimal pickup is expected in real estate activity in the near-term, according to the survey.
Despite steel being classified as an essential commodity, several makers of the alloy were compelled to shut their blast furnaces during the lockdown. Respondents estimate 20-30 days, on average, for the furnaces to stabilise after production begins in full swing.
Steelmakers expect production to stabilise only after the second quarter, the survey showed. More than 70% of the respondents said exports will help normalise the output until domestic demand recovers.
Weak financial health and lower demand are expected to result in delayed capex plans, with nearly 87% of respondents indicating a delay of more than a year. Of these, more than a third may shelve the plans altogether.
Weak realisations and a slump in sales volumes as a result of the extended lockdown and subdued demand are expected to shrink margins by 200-250 basis points on average, the survey showed.
A majority of respondents expect additional support from the government over and above the incentives announced in the Rs 20 lakh crore economic package, Crisil said.
While 40% sought continued duty support and increase in export incentives, another 20% want incremental spending by government on infrastructure to ensure continued demand.


BloombergQuint

Jun 13, 2020 12:39
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