Cushioning near-term blow attains priority

The extended lockdown to contain the Covid-19 pandemic has dealt a telling blow to the steel industry. With construction and manufacturing brought to a standstill and return to normalcy a distant proposition, the industry’s prospects have dimmed in line with the economy at large.

CRISIL Research conducted a focused survey of senior management teams of major steel companies and industry experts to gauge the extent of damage to the sector and glean a sense of what lies ahead.

The responses indicate a revival in demand is more than a quarter away.

The survey has, however, helped understand how the industry is coping with the challenging investment climate, addressing risks and pivoting strategies in the near term.

Key takeaways

• Steel manufacturers are focussing on managing liquidity and cash flows in the near term to tide over an estimated contraction of 60-65% demand in the first quarter of fiscal 2021.
• 75% of respondents indicate extending support through incentives and extended credit cycle to MSME and downstream sales channel players, to ensure their business continuity.
• More than 35% of industry respondents anticipate a demand contraction of over 15% for the fiscal, with the free fall arrested gradually. Indeed, 60% of the respondents expect demand to recover in third quarter.
• The anticipated demand destruction has resulted in steelmakers taking a cautionary stance towards capital expenditure, with more than 75% respondents planning to either delay or altogether shelve their plans.
• The respondents believe incremental government support towards facilitating exports, along with tax and logistics concessions, can help them tide over this crisis.

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