Metal producers look to repair dents after taking Covid-19 pandemic hit

The third of the five-part series looks at pick-up in metal sector demand & prices

Metal firms are nearing normal capacity utilisation after shutdowns and lowering output on account of nationwide lockdown to contain the spread of the pandemic. Sales started picking up in May and, more significantly, since June, with the resumption of economic activities. Major steel producers are now operating at 85-100 per cent capacity.
 

In the private sector, Tata Steel is operating at full capacity this month, while Jindal Steel & Power (JSPL) is at 90 per cent and JSW Steel 85-90 per cent.
 

But for the Covid-19 cases at its Bellary plant, JSW Steel, too, would have reached 100 per cent capacity.
 

Tata Steel Managing Director (MD) and Chief Executive Officer T V Narendran said: “From July, we are at 100 per cent capacity.”
 

He said the share of domestic sales would be 70 per cent this month. In Q1, exports were at 50 per cent. In the June quarter, Tata Steel recorded lower sales and production on account of the lockdown, but sales started picking in June.
 

JSPL MD V R Sharma said capacity had picked up from 80 per cent in May to 90 per cent in July and domestic sales were at 50 per cent of the total, a sharp increase from the initial months of the Covid outbreak, when they were at 30 per cent. “We are selling whatever we are producing. Things have normalised,” said Sharma. JSPL has recorded a 7 per cent rise in consolidated steel sales quarter-on-quarter during June quarter.

Steel Authority of India (SAIL), incidentally, achieved its highest ever sales for the month of June. Domestic and export sales stood at 1.28 million tonnes (MT), a jump of more than 18 per cent over the corresponding period last year.
 

The uptick in domestic demand has been led mostly by the infrastructure and rural markets.

 

ICRA Senior Vice-President Jayanta Roy pointed out domestic players had increased steel prices in July by Rs 500 and Rs 700 per tonne for flat and long products, respectively. “This is on the back of rising domestic consumption, which increased by almost 13 per cent in June over May. Despite the rise, flat product prices are still down by Rs 2,750 per tonne compared to the one at the end of March, while long product prices are almost stagnant, notwithstanding wide fluctuations intermittently,” he explained.
 

The normalisation of operations for steel firms has had a rub-off effect on NMDC, the country’s largest producer of iron ore. NMDC’s sales in June were marginally lower at 2.48 million tonnes, compared to 2.66 million tonnes in the year ago period.

N Baijendra Kumar, chairman and MD, NMDC, said: “The company will achieve the target for 2020-21 in the coming month.”

After cutting prices by about Rs 1,000 a tonne over April and May, NMDC increased prices by about Rs 200 effective July. International iron ore prices were, however, at around $100 a tonne.
 

In the non-ferrous segment, globally, prices were driven by supply-side issues as miners in South America were affected by Covid. “A supply-side impact is being felt in copper and zinc, globally. Zinc prices have strengthened from $1,850 a tonne in March and April to $2,145 now, while copper prices are back to January levels of $6,300 a tonne. Aluminium, too, has recovered from the lows of $1,430 a tonne in April to more than $1,600 now,” said Soumyajyoti Basu, assistant vice-president, ICRA. “In the domestic market, copper prices are higher by 10-15 per cent now over the year-ago period,” Basu said.
 

Sunil Duggal, group chief executive officer at Vedanta, said the prices of both aluminium and zinc were looking up. “We are operating at 100 per cent in aluminium and zinc and selling 100 per cent. Demand in India is normalised to 80 per cent level,” Duggal said.
 

Zinc was at 50 per cent in April and 80 per cent in May, while aluminium was at 100 per cent. Globally, aluminium was operating at 100 per cent as being a capital-intensive and largely automated industry.
 

Duggal said rural and semi-urban and small cities were driving demand in the domestic market. “Demand was picking up fast,” he said.
 

However, in Q1, the share of exports of aluminium was at 89 per cent and zinc at 63 per cent.
 

In its Q4 earnings call, Hindalco said in April, 90 per cent was exports; in May, exports were about 80 per cent, but in June, there was a pick-up in domestic demand. In Q1 of FY21, therefore, exports’ share would be 75 per cent and the company was hoping to get back to last year’s run rate of 60 per cent export by the September quarter.
 

While there is recovery in the metals space from the lows in April and May, it needs to be seen if the trends sustain, given that some analysts are expecting a contraction this year.