Domestic steel consumption estimated to grow at 2%-2.5% in 2020

KOLKATA: Domestic steel consumption is estimated to grow at 2%-2.5% in 2020, down from a 7.5% consumption growth in FY19, despite the 21-day lockdown to prevent the spread of coronavirus that will hurt steel sales in March and April, global ratings agency Moody's said in its latest sector report on Wednesday.

The estimate for India's steel consumption growth is in line with Moody's estimate for the country's GDP growth given the high co- relation between the two.

"Indian steelmakers profit have been high relative to peers (Tata Steel $ 180-200/tonne and JSW at $120-130/tonne). However, this year we expect profitability to decline," the report said.

On the production side, steel plants like JSW Steel for instance, have been scaling back production because of the expected weak demand in March and April, as well as some supply chain disruptions.

The Outlook for Asia was negative with China demand declining and inventory up sharply, the report added.

Globally, the steel industry is struggling under the impact of the outbreak with key customers like automakers, construction and oil & gas drillers also struggling. Automotive, one of the most important end markets for the steel industry, is seeing sales plunge. Moody's estimate predicts US sales will go down at least 15%, Western Europe down 21%, Japan down 8%, and China down 10%, with growth returning later in the year. Oil & gas markets, another key customer segment for steel, will experience contraction given the plunge in prices from both the stalled global economy and a dispute between Saudi Arabia and Russia over production levels. Construction activity is likely to slow further, with cancellations likely, it added.

Through it all, government support may help soften the blow, Moody's said. In the US, the Federal Reserve instituted a number of monetary policy and quantitative easing measures to stem the drop in overall liquidity, including buying investment-grade corporate debt, supporting new loans and secondary credit markets, among other initiatives. Other countries may take similar measures. The European Central Bank announced an emergency bond-buying program of Euro 750 billion ($820 billion) and is weighing other options.