The ongoing demand shock and an inability to pass on elevated costs to customers will severely hit the profitability of steelmakers this fiscal.
The coronavirus pandemic is likely to take a toll on steel businesses in India as the steel consumption in the country is expected to fall by at least 10 per cent for rated Indian steel-makers in the 12 months to March 2021. The ongoing demand shock and an inability to pass on elevated costs to customers will severely hit the profitability of Asia Pacific steelmakers over the year to March 2021, said a report by the Moody’s Investors Service. While the profitability is set to drop 15 per cent in the current fiscal, the sales volumes will contract for the first time since 2015.
Unlike previous downturns that were prompted by supply gluts linked to large capacity increases, the coronavirus-led downturn has caused demand destruction across major steel-user industries,” said Laura Acres, Managing Director in Moody’s Corporate Finance Group. On the back of the supply disruptions among major steel producers, the prices are also expected to remain at elevated levels throughout the year.
The report highlighted that the falling automaker demand and weakness in the construction, infrastructure, and shipbuilding sectors will result in sales volumes contracting for the first time in the last five years. Sales volumes will fall by mid-single digits in Korea (Aa2 stable) and Australia (Aaa stable), and in high single-digits in India (Baa3 negative), the report added. Kaustubh Chaubal, Moody’s Vice President and Senior Credit Officer, said that the outlook for the steel sector is negative.
Meanwhile, in the month of May 2020, India produced only 5.8 million tonnes of steel which was a fall of 39 per cent on-year, however, India remained a net exporter of finished steel during June 2020 with a net trade surplus of 1.3 MT. China and Vietnam were top destinations for Indian steel exports as these two countries together accounted for nearly 64% of total steel exports from India in June 2020, which was substantially higher as compared to just 6.2 per cent in June 2019, according to Care Ratings. On the other hand, UAE and Nepal which together accounted for 40 per cent of total steel exports from India in June 2019 saw their share fall to just 8% in the same month this year.