Though the demand plummeted by over 90 percent in April, it has gradually improved, JSW Steel's Jt MD and Group CFO said
Despite an unprecedented demand destruction because of the COVID-19 disruption, the recovery since then may help the Indian industry get back to 'normal levels' by the fourth quarter of FY21, a senior executive of JSW Steel said.
"The picture varies with different companies and markets. Overall, there is a gradual recovery in demand. It will take some time. At least by the fourth quarter of this financial year, demand for steel may get back to normal levels," Jt Managing Director and Group CFO Seshagiri Rao told Moneycontrol.
Since the national lockdown in March, the demand for steel plummeted by 91 percent in April, compared to the same month in 2019. It recovered in June but was still half of the volumes seen in the same month in 2019. The demand has further improved in July, Rao indicated.
Infrastructure and auto sectors are the biggest consumers of steel in the country.
Rao said that demand had recovered better in segments such as packaging, appliances and solar.
"The recovery is faster in smaller places, where the COVID-19 impact has been lower than seen in bigger cities and urban centres. Infrastructure projects in these places are progressing well," said Rao.
Similarly, he added that the demand for steel was better in the northern and eastern parts of the country than in the western and the southern ones.
The demand destruction forced JSW Steel in the red, for the first quarter of the financial year. It posted a consolidated loss of Rs 582 crore, for the three months ending in June 2020. It posted a net profit of Rs 1,008 crore in the same quarter in 2019. The steelmaker's total income during April-June 2020 also declined to Rs 11,914 crore, compared with Rs 19,953 crore in the year-ago period.
JSW Steel, which is now utilising 85 percent of the capacity of its main steel-making facility in Karnataka, saw its production fall to 2.96 million in the quarter, from 4.24 million a year ago.
JSW Steel has given a guidance of 16 million tons for the year's production. It expects to have sales of 15 million tons. Rao said that the company would be able to meet this guidance in the remaining nine months.
Exports and the China factor
Interestingly though, the company's steel inventory came down by the end of the quarter, despite the demand shock.
JSW Steel exported 1.58 million tons of steel in the three months, amounting to 57 percent of its production. The Indian steel industry, overall, exported 41 percent of its exports in the first quarter.
This was mainly due to the demand surge in China.
"Production in the global steel industry contracted by 14 percent in the April to June period. At the same time, China increased production by 9 million tons," Rao said, pointing out the surge in demand for steel in the Chinese market after the country got out of COVID-19.
The phenomenon led to another rare occurrence in the global steel industry, pointed out the industry veteran.
"For the first time in over a decade, prices of steel in markets in the US and UK were lower than that in China. Usually, it's the other way around," said Rao.