The performance of Indian steel players is likely to be affected in the first quarter of 2020-21 due to the coronavirus outbreak and the subsequent nationwide lockdown, according to Icra.
Domestic firms may have to face challenges such as weak domestic demand, which is likely to lead to inventory pile-up exerting pressure on steel prices, the ratings agency said in a statement.
"The outbreak of coronavirus and associated lockdown will keep both production and consumption under check in Q1 (first quarter) FY21. As a result of Covid-19 pandemic and the 21-day nationwide lockdown, the performance of domestic steel makers is likely to be adversely impacted in Q1 FY21," it said.
Jayanta Roy, Senior Vice President and Group Head, ICRA said the Covid-19 and slowing Chinese demand will affect global steel demand-supply balance in the near term.
In the domestic scenario, the key demand drivers --construction and infrastructure sectors -- besides the automobile and capital goods sectors, continue to witness muted or negative growth, Roy said.
As far as exports are concerned, Icra said, the rapid spread of the outbreak to countries other than China has disrupted the seaborne steel trade, and the same is likely to fall further amid the looming uncertainty surrounding global growth.
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As for imports, the increased scrutiny of shipments and weakened position of the rupee are expected to keep them low.
The rally witnessed in domestic steel prices since November 2019 is based on supportive international prices, but this is likely to halt due to the outbreak.
The agency also noted that domestic hot rolled coil(HRC) prices stood at Rs 38,000/MT in March 2020, and given the low demand amid the lockdown, a correction looks highly likely only in the next quarter.
Roy said: "We are not expecting a rebound in steel consumption growth in FY2021. As against a growth rate of 3.8 per cent in FY2020, consumption growth is likely to settle at around 2-3 per cent in FY2021, given that Q1 could be a very weak quarter. Margin improvement is unlikely in FY2021.
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