In 2019, the Indian steel industry continued to expand. China remained world’s largest crude steel producer in same period (996 mt) followed by India (111mt), Japan (99mt) and the USA (88mt). According to data from the World Steel Association, India’s crude steel production increased by 1.9 million tons in 2019 to 111.2 million tons which ranks 2nd in the world, accounting for 6% of global crude steel production and 5.7% of crude steel consumption worldwide.

In terms of major companies, Tata Steel's 2019 crude steel output increased by 1.37 million tons to 30.56 million tons and the Steel Authority of India Limited (SAIL) produced 16.15 million tons. The crude steel production of JSW fell by 630,000 tons to 16.06 million tons while JSPL's increased by 870,000 tons to 8.17 million tons.

1. Sharp Fall in Steel Production

In 2020, the development of India's steel industry has been hampered. Like many other countries, the Indian government started lockdown from March 25. Steel manufacturing, as a continuous processing industry, was approved to operate with ensuring the health of workers by protection measures as the premise during this period.

On Jul 09, 2020, Tata Steel BSL said its crude steel production fell over 41% to 6,59,000 tons during June quarter 2020 as compared with 11,22,000 tons in corresponding period a year ago.

The company's sales also declined 19.58% to 6,94,000 tons in the June quarter as against sales of 8,63,000 tons in the first quarter of 2019-20.

"Production and sales were impacted in the first quarter of 2020-21 and ensuing mobility restrictions severely impacted industrial activity and consumer sentiment. This affected crude steel production and sales during the quarter," Tata Steel BSL said in a regulatory filing.

Tata Steel BSL said the company started ramping up its steel making operation at Angul, Odisha, in the second half of June 2020.

"Downstream facilities are also being ramped up progressively on the back of improvement in market demand and higher capacity utilisation,” it said.

Domestic steel production fell by a record 69.5% y-o-y in April 2020 as per provisional figures. The country produced a mere 2.8 million MT of crude steel during the month, according to data released by Joint Plan Committee (JPC).

2. Slowdown in Demand from User Industries

India's demand for steel contracted by 91% y-o-y in April 2020 with end user industries' like auto real estate and infrastructure that constitute 80% of demand, coming to a virtual standstill.

Steel has been classified as an essential commodity and permitted to operate during the lockdown period. However, production was impacted due to a sharp fall in demand from user industries, CARE Ratings said in its latest report.

Steel production took a substantial hit in the month of March and April when the country was under lockdown as most user industries witnessed halt in production.

"Domestic steel industry had to scale down their production in absence of demand from user industries. Only top six integrated steel producers are expected to have reported production during the month. These steel companies are working at less than half of their capacities," the report said. Secondary steel producers are unlikely to have reported any significant production as they are grappling with additional challenges of low working capital and depleting cash reserves under lockdown, the report added.

The slowdown in demand from user industries like construction, real estate, auto and infrastructure which consumes 80% of steel led to the sharp fall in steel production.

Getting back migrant labour who have returned to their home state and restoring the supply chain will be key challenges going forward as steel companies focus on ramping up capacity, the report added.

3. Indian Steel Exports Hit All-Time High in June

Large steel players were operational at lower utilisation levels during the lockdown and due to a dull domestic demand, companies increased steel exports, majorly to China albeit at lower margins.

Steel360’s data reveals that from April to June, there has been an exponential jump in export volumes and around 60-65% of this quantum has been going into China. At a year-on-year (y-o-y) level, export volumes in the first quarter (Q1) of financial year 2020-21 (FY21) were up a whopping 143% at 5.11 million tonnes (mn t) over 2.10 mn t recorded in the same quarter in the previous fiscal of FY20. Quarter-on-quarter (q-o-q) figures reveal that overseas steel sales have been up 84.47% against 2.77 mn t seen in the January-March, 2020 (Q4, FY20) period.

As per data available with Steel360, export volumes in June, 2020 alone were at a hefty 2.27 mn t, up 18.84% over May month-on-month. Exports in May, 2020, at 1.91 mn t, were up 105.37% over April m-o-m. April, 2020’s figure of 0.93 mn t were up 12.05% m-o-m over March export volumes of 0.83 mn t.

“April and May were the two months when the mills were struggling to survive. Domestic demand was nil due to the lockdown. No other market, other than China, was behaving normally at that juncture. Whether in South East Asia, Middle East or Europe, which are usually the prime destinations of steel from India, were in lockdown. The only option thus was China and to an extent Vietnam, Nepal and a few other countries,” observed a source.

4. Reviews and Forecast

With lockdown in place, manufacturing activities have nosedived in India to nearly one-third of the previous level. However, manufacturing companies are still looking to reduce imports in certain sectors after Prime Minister Narendra Modi’s call for Make in India. “Latest quarterly survey on manufacturing reveals a dismal status for Q1 (April-June 2020-21) as compared to the previous few quarters of 2019,” a FICCI report said on Monday, adding that manufacturers are looking to reduce dependency in areas like automotive, textiles machinery and leather/footwear firms are looking at alternative sources of inputs/raw materials. On an average, companies are operating between 28 to 63% of their previous capacities with workforce deployment ranging from 33 to 57%.

A whopping 90% of respondents also said that they expect low or same production in Q1 2020-21. Overall, there has been a capacity utilization decline in manufacturing to 61.5% in Q4 2019-20 as compared to 76% in Q3FY20.

The UN slashed India’s projected growth rate to 1.2% in 2020, a further deterioration from the already slowed growth of 4.% in 2019, and forecast that the global economy will contract sharply by 3.2% in the World Economic Situation and Prospects as of mid-2020 released by the UN.

(Edited by PKU PIONEER)