NEW DELHI: The Covid-19 pandemic is shaping up to deliver a substantial blow to the Indian steel sector, with analysts and industry executives warning that there are now significant risks to profitability in both domestic and international markets. While concerns are high on the domestic front that plant operations may be hit by the outbreak, India’s steelmakers are likely to face increased competition from Chinese rivals in export markets.
With the number of daily new cases steadily falling in China, one of the world’s largest steel exporters, market analysts believe that prices will begin declining sharply from the beginning of the next financial year as the country begins ramping up exports to Asia markets.
China has already increased tax rebates on exports from 9 per cent to 13 per cent. “We believe this move is largely to support exports out of China. With Europe and the US under the grip of Covid-19, we believe the key exports destination of China shall be Asian markets and BRI countries. Asian markets, including Vietnam, are key destinations for Indian exports also,” noted Vishal Chandak of Emkay Global.
While Indian producers export just about 8 per cent of their total production, their top export markets are Vietnam (15 per cent), UAE (8 per cent), Italy (7 per cent), Belgium (6 per cent) and Nepal (6 per cent). There are no direct steel exports to China now.China’s ramping up of steel exports will likely send international steel prices diving for the bottom. “China’s steel output, despite ongoing curtailment efforts, could outpace the receding steel consumption demand, resulting in an inventory pile-up and pricing pressures,” said India Ratings and Research, adding that this could be aggravated if the virus outbreak worsens in other large economies.
On the domestic front, iron ore costs are expected to remain high in the short term due to aggressive bidding in the recent auctions, putting a dent on profit margins if prices begin falling from April as expected. Steel plants, with high concentration of workers, may also be impacted hard. “Given that thousands work together in these places, we are fearful of any virus outbreak at such places, which can have severe repercussions,” said Chandak.