Steel consumption in India is expected to decline by at least 10% in the 12 months to March 2021 due to the adverse economic impact of the coronavirus pandemic, according to a report by Moody's Investors Service. At the same time, the addition of new capacities will fade into the background, since weak steel consumption will impede the creation of free cash flow this year.
“India will remain the world's second largest steel producer after China after overtaking Japan in 2018. But new production facilities will be relegated to the background due to weak steel consumption, which will negatively affect the generation of free cash flow this year, "- said in the message.
The agency also noted that the consolidation in the Indian steel sector, which began in 2018, will continue in 2020.
Moody 's Investors Service predicts a negative outlook for the entire steel industry in the Asia-Pacific region. India's economic growth (negative Baa3) will remain substantially lower than in the past, and real GDP will contract by 3 percent in 2020. This decline is largely due to a sharp drop in demand from automakers and a slowdown in construction, infrastructure and shipbuilding.
“We assume that economic activity will start to grow gradually from July. However, given the likelihood of a second or third wave of viral infections or deeper economic costs than is currently taken into account, the risk of deterioration of these forecasts is significant, ”the agency said.
Moody's expect Indian steelmakers to seek to redirect their surplus to relatively open export destinations following a decline in domestic consumption.
“Metallurgists will target markets such as Southeast Asia, the Middle East, parts of Southern Europe and China for export. However, export sales will be lower than domestic sales, with the latter benefiting from import price parity and anti-dumping duties, ”the report said.