In the current fiscal, the domestic steel demand is expected to contract by 9-11% on account of the nationwide lockdown through April-May and slower-than-desirable ramp-up in manufacturing activities post that, Indian Steel Association(ISA) knowledge paper prepared by CRISIL said on Friday.
The demand for steel plunged 55% in the first quarter as the pan-India lockdown brought construction and manufacturing to a near standstill. However, it has recovered sharply since then, with the demand decline limited to only 17% in the first 9 months of FY21, said the knowledge paper.
The paper was presented today at ISA Webinar on new opportunities for steel in construction and infrastructure.
While economic activity – and hence steel demand – has picked up from the third quarter, the huge blow suffered in the first two quarters is likely to weigh on the year.
Post fiscal 2020-21, steel demand will drive its growth trajectory to 7-7.5%, led by numerous government-led initiatives on infrastructure and housing, as well as the automotive sector as the low base of two years will also help, said the research agency.
Demand from building and construction (B&C) segment, which accounts for 35-40% of steel demand, is expected to rise 5-6% between FY22 and FY25, led by a pick-up in affordable housing, kutcha-to-pucca conversions in rural belts, especially in the eastern and central regions, and real estate construction (given deferral in construction and RERA compliance).
Demand from the infrastructure sector is expected to be propelled by a healthy rise in demand from roads, metro projects, and railways.
Large-scale irrigation projects, especially in the southern and western parts of the country, will also provide robust support. Deferral of capital investments in the past two years will also provide a low base for support.
Meanwhile, engineering and packaging sector will post modest growth of 4-5% between FY22 and FY25 as demand from conventional power segment stays weak. However, consumer durables and packaging sector should perform well.
Automobiles industry will post healthy growth of 9-10% through FY25 after two successive years of decline.
Steel demand was already under stress as the pandemic marched in, causing havoc across downstream segments.
India’s steel demand logged a healthy 5.3% CAGR between FY16 and FY20 to touch 100 million tonnes, largely spurred by the infrastructure sector, including railways.
Demand had shot up 8% on-year in 2017-18, post a low-growth trajectory over 7 years, followed by 9% in FY19.
The sharp rise was on account of higher infrastructure spending, spurred by automobile sales and strong construction activity aided by affordable housing.
However, the industry was unable to sustain the growth momentum in 2019-2020 as demand lost steam.
While demand has seen a sharp recovery in the recent months, the steep decline witnessed in the first quarter amid stringent lockdown norms is expected to drive demand 9-11% lower in FY21.