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Indian steel market eyeing all options during COVID-19 lockdown

New York — With steel trading in India effectively at a halt during the COVID-19 lockdown, mills are looking at every option as they strive to survive.

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Operations were being run at a minimum holding level and semi-finished inventories are being stored as mills look for export opportunities as well as supportive government policy, market participants said.

Overall, the country's steel demand was expected to fall 7.7% this year, the Indian Steel Association forecast recently, reversing its February forecast for 5.1% growth.

The association saw finished steel demand falling to about 93.7 million mt, down from an estimated 101.5 million mt in 2019.

In contrast, CRISIL, an S&P Global company, has in its baseline scenario forecast that steel demand contracts 14%-17% over April-March, while its pessimistic scenario was for a 22-25% demand contraction.

Steel run rates were expected to fall to about 67%-70% for fiscal year 2020-2021 (April-March), from about 76% in 2019-2020, CRISIL said, adding runs will be lower for electric arc furnace/induction furnace players.

Inventory pile-up

The forecasts come after India saw its March crude steel production fall 23% month on month to 7.39 million mt, while finished steel output fell 19% to 6.75 million mt, ministry of steel data showed.

That meant India's overall crude steel production for 2019-2020 totaled 108.5 million mt, down 2.2%.

The start of the new financial year has led to a rise in mill inventory and a focus on export bookings, as the domestic demand lull was expected to stay last until at least May 3 when the countrywide lockdown ends.

"The mills are transferring inventories to their own stockyards but those are likely to be ad hoc sizes, on which they might have to give discounts depending on customer requirements," a New Delhi based distributor said.

"Mills seem to be getting into panic mode figuring out what product mix they should have, how they can sell next month, what can they do to induce buying apart from price...just to stay afloat."

"We are able to ship within 15 days of initiating dialogue with the customer and so May shipment is still possible," a New Delhi-based mill source said.

"China is currently the biggest buyer [of billet]. But if iron ore prices drop, perhaps they will stop."

Auto industry delays operations

Auto makers have largely decided to delay the restart of plants after the lockdown ends, sources said, as well as demanding lower prices from steel mills from October to next March.

India's vehicle production for April 2019 to March 2020 fell 15% year on year to 26.4 million units amid weak demand and production cuts, data from the Society of Indian Automobile Manufacturers showed. March output was down 34% year on year to 1.45 million units.

"Now, with the 21-day lockdown in place and all set to get extended, India's automotive industry, which contributes about 7.5% of the country's GDP has come to a standstill," SIAM president Rajan Wadhera said.

SIAM said if India's GDP grows by about 3% "the automotive industry can see itself going down by 15%-25%...If GDP is all of only 1%, then the decline can dive further to 25%-35%...Hence, the cumulative sales decline in the last fiscal (2019-2020) and current fiscal may come out to be 50%."

Need for 'steel hubs'

Indian mills see a long-term opportunity in establishing manufacturing in the country as well as steel hubs, as suggested in the draft framework policy "Development of Steel Clusters in India" published in October by the ministry of steel.

"India should give an answer to the world as a serious alternative for doing business," a Mumbai-based mill source said.

While Indian mills are unlikely invest in such initiatives in the short term, such investment zones would probably lead to inward FDI over the longer term, sources said.

The policy proposed the "creation of 'Integrated Steel Hubs' based on the principle of availability of raw material, logistics support and/or proximity to demand centers", in line with Gwangyang Bay in South Korea, Guangdong Province in China and the Ruhr region in Germany.

"The discussion on steel hubs has been around for nearly two years, and is more than an economic backlash against China, it is about economic prudence," a New-Delhi based mill source said.

"International companies have understood that it is bad to have all their eggs in one basket."