It is said that if one wants to predict the future, he will have to first study the past. How was the past one year for the economy and specifically for the steel sector ? Can we draw some conclusions and make some guesstimates about the present fiscal by analysing past year’s performance by iron & steel sector ? Let’s see !
In July 2020, the covid pandemic was creating havoc all over the world and also in India. The steel industry, which was almost shut during the previous quarter, was slowly trying to wake up. As such the steel demand in construction sector was never fully bottomed and it was the first sector which gave an upward push to our industry post covid. Also a good monsoon triggered tractor demand which gave an initial boost to almost shut auto industry. In next few months this industry really bounced back to almost pre covid sales levels. Of course pre covid period was one of the worst phases for Indian auto sector. The iron & steel sector, which was operating at around 50 % capacity utilisation in the month of June 2020, achieved almost 75 % capacity utilisation by October. This was mainly because a fundamentally strong demand in construction sector, bouncing back of auto sector and the surge in exports for the first few months. It should also be noted that the eastern states, which account for higher steel production, never faced labour migration problem. Infact this migration was from western to eastern region and to some extent, the steel industry actually gained from it. Thus by end of the last year, most of the logistics disruptions were corrected and the steel industry was almost back to pre coved levels.
Though the demand was more or less restored, the balance sheets of the steel mills were damaged and would require a long period to wipe out the losses incurred during the peak covid period. Also the SMEs, which form the backbone of any economy, suffered great losses which were difficult to absorb. Indian government did announce a huge 20 Lac crore package and it did help SMEs to some extent, but still few had to pull down the shutter permanently. Nevertheless, pandemic, though a disastrous entity, taught us a lesson or two. It hastened the digitalization process in the industry. Also, ‘Work From Home’ (WFH) evolved as a good alternative to office culture to such an extent that huge centralised offices may become obsolete even after the pandemic is completely over.
What lies next ? I think the steel industry in India stands on a very strong foundation of demand from domestic infrastructure, construction and auto sector (in that order) and will surely remain bullish for a foreseeable future. The Indian economy is expected to grow at a robust rate of 7 to 8 % annually and will certainly provide the required support and the push for iron & steel sector in the country.