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The Covid-19 Pandemic shattered hopes of success and glory and labelled 2020 as the year of misfortune. India’s expectations to achieve new records in growth were ruined when the government was forced to limit the movement of 1.3 billion people in its country to avoid the spread of the virus. The livelihoods of many were destroyed and the core sectors of India were hit very badly. One of these sectors was the steel sector of India.

On 23 March 2020, the Sensex was down by around 4000 points, hitting a low of almost 26,000. Along with the other sectors of India, the steel sector was trading in red. Tata Steel plunged around 35% with JSW Steel and SAIL down by 45% in 30 days. Majority of steel companies hit their 52-week lows around March and April. The idea of associating with the steel sector became endangered because domestic steel production fell by a record 69.5% year-on-year in April 2020 as per provisional figures.

According to the data released by JPC or the Joint Planning Committee, India produced a mere 2.8 million tonnes of crude steel during the month of April. Although steel was classified as an essential commodity and the steel industry was operational during lockdown, the production of steel was impacted badly due to a sharp fall in demand from user industries. Also, many companies publicly announced that they would halt their productions of steel. One of these companies was JSW Steel, which decided to scale down or suspend its production during the lockdown. It registered a pointy fall of about 60 percent in its crude steel production with the production standing at 5.63 lakh tonnes during the lockdown. For the first time in more than six years, JSW Steel reported a loss in its first-quarter report. On the other hand, government companies like SAIL reported a net loss of Rs 1,226.47 crore, and private companies like Tata Steel reported a net loss of Rs 4,609.17 crore for the quarter ended June 20, 2020. Tata Steel’s gross sales slipped 27.54% during Q1 FY21 to Rs 23,812.50 crore from Rs 35,382.16 crore in Q1 FY20. This highlighted how the first-quarter results of steel companies were a testimony to the impact covid had on these industries. In addition to primary steel manufacturers, the secondary manufacturers were also hit. They were struggling with the challenges of low working capital and low cash reserves.

Their hardships reduced as the second and third quarters brought some relief to them. The Ministry of Steel had said that the domestic steel industry had started showing signs of improvement in June. In June, the country’s crude production stood at 6.8 million tonnes, 17.7 percent higher over May 2020 and over a 100% rise over April 2020, consistent with ministry data. In terms of costs, the retail prices of HRC (hot-rolled coil), CRCRC (cold rolled coil), and rebar increased by 1.43 percent,1.69 percent, and 2.17 percent respectively in June. The major reasons behind this were the relaxation in lockdown rules and increasing steel exports. Also, as the process of easing restrictions of lockdown started in June, activities in construction and various projects picked up and the demand in the domestic steel market surged. Besides, the government initiative on multimodal infrastructure projects like Bharatmala, Sagarmala and Dedicated Freight Corridors within the logistic sector has also helped the industry. Along with these, the manufacturers expect projects from the Indian Railways and other state agencies like BHEL, PGCIL, et al. just like the irrigation department. Once these projects are declared by the government, steelmakers will be in a position to sell more steel. BSE Metal Indices registered an increase of 4.7 percent in June 2020, indicating recovery after lockdown. Tata Steel BSL posted a staggering result for the quarter ended September 2020. They reported a net profit of Rs 341.71 crore. Steel Authority of India continued the streak of losses in the second quarter of 2020. It reported a combined net loss of Rs 436.52 crore. During the third quarter, Jindal Steel and Power Limited revealed the highest-ever production volumes. The production and sales stood at 1.93 million tonnes and 1.87 million tonnes respectively.

The steel sector is currently witnessing sustained growth for benchmark hot-rolled coil (HRC) products. This trend began in January 2021 – according to SteelMint, the price of 2.5-8 mm HRC in the Mumbai wholesale market was Rs 55,250 a tonne; the price hike effected from January 5 raised the wholesale price to an astonishing Rs 58,000 a tonne. On New Year’s Day, the valuation for a similar grade of HRC within the Mumbai wholesale market was at a staggering high. It was Rs 37,500 per tonne. Indian Steel Association (ISA) attributed the price rise to an acute shortage of iron ore leading to a sharp rise in its prices, northward movement of steel prices in international markets with which Indian prices ‘move in sympathy’ and subdued domestic production. The current price is lower, and has seen the beginning of a downward spiral in mid-April.

The January price rise also helped the steel stocks achieve new heights. The BSE benchmark touching 50,000 earlier this year coincided with many steel stocks reaching their one-year high. Tata Steel and JSW steel touched their 52 weeks high of around Rs 726 and Rs 413 respectively. Tata steel gained around 110% in 6 months. This success was repeated by many other steel firms. JSW Steel, SAIL, JSPL gained around 98%,131%, and 82% respectively in half-year.

What does the future hold for the steelmakers in India at the international level? Domestic steel players were able to boost their production internationally by improving efficiency and reducing cost as China has become a net importer due to the COVID-19 impact. The demand from Southeast Asian countries and Europe is also increasing as their activities have been impacted. Therefore, Indian players have been able to increase their reach. In Europe, the demand is coming from Italy, Spain and Germany because their steel industries have been severely impacted due to the pandemic. Similarly, good demand is coming from the Philippines, Indonesia and Malaysia.

In the next few months, the sector is hopeful of rapid growth owing to the Government’s infrastructure projects like Atal Mission for Rejuvenation and Urban Transformation, setting up of the National Investment and Manufacturing Zone, Smart cities, etc. The liberalization of the Mining sector and rapid investment in the infrastructure sector will definitely result in the growth of capital goods. This will consume nearly 15% of the domestic steel production. The automobile sector is expected to sustain the steel demand in the mid to long term, if not in the immediate future, owing to the ambitious Automotive Mission Plan 2026. The AMP 2026 is aimed at bringing the Indian Automotive Industry among the top three of the world in engineering, manufacture and exports of vehicles and components. It aims at increasing the industry’s contribution to more than 12% of GDP and creating an additional 65 million jobs. All of these estimates are a bit skewed, of course, as they are predictions made in normal circumstances. But it is unlikely that the deviation from targets will be very high.

According to the worldwide Steel Market Outlook Report, the steel demand will increase from 1537 MT in 2014 to 1992 MT in 2030. Infrastructural development in developing economies will increase the demand for iron and steel in the years to come. The per capita consumption of steel has increased manifold over the last five years. It has risen from 57.6 kgs to 74.1 kgs. The Government has an agenda of doubling rural steel consumption from the current 19.6 kg/ per capita to 38 kg/ per capita by 2030-31.

Iron and Steel continues to be a flourishing industry. The Indian industry is among the upcoming ones of the planet. The rate of production of steel in India has been rising gradually over the past couple of years. In recent times, a lot of foreign direct investment is being made in the Indian Steel Industry.

Traditionally, India has been considered as one of the largest steel producers of the world. In addtion to production slumps as the second wave of the dreaded COVID-19 virus gets stronger, the steel sector suffers from many challenges like poor demand, price slumps, competition from cheaper imports and delays in project execution. Despite these challenges, the Indian Steel Industry has tremendous potential with many avenues for newcomers to venture into. It demonstrated its resilience last year, and it is not an exaggeration to believe that it can also withstand the adversities of the next few months as well.

By Trish Gupta


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