“Muted demand and oversupply is likely to create a loop leading to suppressed prices until either there is a substantial uplift in demand or a substantial volume goes out of the market,” it mentioned.
Ind-Ra mentioned the nationwide lockdown has aggravated the challenges for the steel sector.
“With the relaxation in lockdown in many districts across India starting May 4, 2020, Indian steel players will look to gradually increase capacity utilisations. The key challenges in the near term are manpower availability and ensuring finished inventory to normal levels,” the report mentioned.
“While steel and its raw material commodities have been classified as essential goods, the logistical constraints may remain due to non-availability of fleet and longer trip time,” it added.
The company mentioned it had already revised the sector outlook to damaging from secure for monetary yr 2020-21 in February 2020.
Domestic steel demand in FY21 is probably going to drop by round 12-15 per cent year-on-year with end-use industries being closed down and restricted demand progress anticipated over the close to time period.
Demand from infrastructure, development and actual property sectors is probably going to be subdued in 1HFY21 (first half of FY21) with the lockdown in 1QFY21 (April-June FY21) and the monsoon season over 2QFY21 (July-September FY21), it mentioned.
Furthermore, the demand from car, white items and capital items sectors is probably going to cut back with customers deferring discretionary spends within the close to time period.
As such, authorities spending on infrastructure is probably going to be the important thing driver for a gradual restoration over 2HFY21.
The company additional mentioned that it expects a listing build-up primarily of intermediate/semi steel merchandise with downstream amenities of most gamers being closed throughout the lockdown.
Large producers have additionally stored their blast furnaces operational at decrease capability of 35-50 per cent due to the excessive price of restarting the furnace in case it was to be shut.
However, small and mid-scale producers with induction/electrical arc furnaces remained fully shut throughout the lockdown.
“The built-up stock shall put strain on steel costs put up lockdown and the company expects a correction of INR 3,000/MT in common realisations over FY21 on a y-o-y foundation.
“As of end-March 2020, hot rolled coil prices (Delhi 2.5-8mm, IS2062) were 3 per cent lower while rebar prices were 9 per cent lower than those at end-January 2020 when there were limited concerns over the spread of COVID-19 in India,” it mentioned.
Ind-Ra mentioned the sector will want authorities help by way of preserving an in depth watch on imports from international locations with which India has signed free commerce agreements (FTA).