Short note on Care Rating Video on Steel Sector

Here is the link of the video: https://youtu.be/MK7EhuudalI

Global Steel Demand-Supply Scenario:

Global Steel Production has risen over the past three years. However, the growth rate has decelerated over the years this is mainly due to slowdown in consumption of steel. Steel consumption depends upon the overall performance of the economy as the demand for steel is derived from the investments made in infrastructure development like Railways, Airport, etc. Globally, almost 50% of the total demand of steel comes from construction sector and 15%-20% comes from the auto-mobile sector. The production of automobile has declined since the past two years and 2019 has been the worst year for automobile globally. The US China trade war and the  uncertainty related to BREXIT has slowed down the pace of global economic growth which impacted demand for steel.

Steel can be manufactured through the blast furnace route or the electric route. In India maximum steel production is done using the blast furnace route. The end use steel production in India is classified in two categories:

  1. Long end use consumption pattern – Long products include products like bars, railway products, etc. They are used for construction and mechanical engineering work.
  2. Flat end use consumption pattern – These includes products like cold rolled strips, hot rolled coil, etc. They are used for automobiles, pipes and tubes, construction, etc.

Due to low per-capita income and limited urbanization, India’s per-capita income in steel is way below the world average which indicates potential to grow. India is the net exporter of steel. India has been an exporter of raw materials like iron ore and core to the rest of the world. There has been decrease in the price of coal due to excess supply and low demand of steel.

Eventually prices of steel corrected in the global market due to a reduction in the tension between US and China.

Due to the impact of corona virus pandemic, the companies are expected to pose lower profitability and lower revenue till the first quarter of 2021.

In the Steel sector most of the companies come under BB rating or below due to the presence of a large number of small players.

Impact of Covid-19 on base metal prices:

In the past one month as there were lockdown in most countries, there was very less demand for commodities due to which massive price declines were seen in commodities. Oil too went below $25/barrel.

Indian steel players were increasing steel prices since mid November but it started declining since January.

Short term outlook

Industry will face headwinds due to Covid19. Consumption will not increase at the earlier estimate. Both global and domestic demand will be lower. Profitability will remain under pressure in FY 2021.

Long term outlook

Care ratings have a stable outlook for steel industry over coming three to four years. Demand is expected to grow by aroundCAGR of 6% during 2021-2023. Both demand and capacity is anticipated to increase. Scope for infrastructure growth is there.

Conclusion:

Overall global economic growth will be slow due to Covid-19. How countries will bounce back after this crisis will remain important because this will impact prices of commodities and also the global economic growth.

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