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Coronavirus impact: India's FY21 steel consumption may fall at least 10%, says report

Weak consumption is likely to negatively impact free-cash flow generation in 2020 as new capacity additions take a back seat, Moody's Investors Service said

twitter-logoBusinessToday.In | July 29, 2020 | Updated 16:59 IST
Coronavirus impact: India's FY21 steel consumption may fall at least 10%, says report
Steel production

India's steel consumption is expected to fall at least 10 per cent for rated Indian steel manufacturers in the 12 months to March 2021 owing to the ongoing coronavirus crisis, a report said. Weak consumption is likely to negatively impact free-cash flow generation in 2020 as new capacity additions take a back seat, Moody's Investors Service said in its latest report. India's (Baa3 negative) economic growth will remain materially lower than in the past, with real GDP contracting 3 per cent in 2020, it added.

"We assume that economic activity will begin to gradually pick up from July. However, given the possibility for second or third waves of virus infections or deeper economic costs than currently factored in, downside risk to these forecasts are significant," the agency said. Moody's estimates that lower GDP growth will translate into steel consumption.

The fall in consumption is largely on account of falling automaker demand, and weakness in construction, infrastructure and shipbuilding. "India will remain the world's second-largest steel producer behind China after having overtaken Japan in 2018. But new capacity additions will take a back seat with weak steel consumption hurting free-cash-flow generation in the current year," it said.

"Steelmakers will divert to markets such as Southeast Asia, Middle East, parts of Southern Europe and China for exports. However, export realizations will be lower than realizations on domestic sales, with the latter benefitting from import parity prices and anti-dumping duties," it also said.

Also read: India may set up electronics commission to reduce dependency of manufacturers on China

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