Long steel demand to pick up with rebound in infrastructure investments: ICRA
Aug 23, 2021
New Delhi [India], Aug 23 : The long steel product industry will be a direct beneficiary of the government's heightened immediate and medium term focus on infrastructure investments to build India out of Covid-induced economic slowdown, investment information firm ICRA has said.
Following years of anaemic long steel product demand, ICRA expects this construction activity to revive demand strongly, lifting the fortunes of large and small manufacturers alike.
So far, available demand has been largely absorbed by larger long steel manufacturers, leading to sharply divergent capacity utilisation trends between large and small long steel manufacturers.
The strong steel price rally and benign coking coal prices have lead to windfall gains for large integrated steel manufacturers while smaller manufacturers have struggled with high input costs (non-coking coal, scrap and sponge iron) and an iron ore shortage during FY2021.
ICRA said it expects the recent easing of iron ore prices in the country and sharp increase in coking coal prices besides an improvement in capacity utilisation of smaller players to narrow the margin gap between large and small steel manufactures going forward.
Following massive construction disruption in Q1 FY2021, infrastructure activity picked up in Q3 FY2021 with pace of execution crossing pre-Covid levels in H2 FY2021.
The state government capex, which accounts for 60 per cent of total capex by the governments, also picked up sharply from December 2020, adding to the Central government expenditure.
Further, the second Covid wave was relatively less disruptive with continued construction activity. ICRA said it expects the government's announced expenditure plans and post Covid pent-up demand pick-up in rural and urban construction activity to lead to increased offtake for long products.
The National Infrastructure Pipeline (NIP), programme which underpins India's infrastructure roadmap and is aimed at improving infrastructure in the country, will lead to significant demand for long steel products.
However, on-ground delivery of these projects will be critical, said ICRA.
