The Covid-19 pandemic is shaping up to be a big blow to the Indian steel sector, with experts and industry executives warning that there are now serious threats to competitiveness in both domestic and foreign markets. While domestic concerns that plant operations may be affected by the outbreak are high, India's steel manufacturers are likely to face increasing competition from Chinese competitors in export markets.
With the amount of daily new cases slowly dropping in China, one of the world's biggest steel exporters, industry analysts expect that rates will continue to decline rapidly from the beginning of the next financial year as the nation starts to boost shipments to Asian markets.
China has already increased tax rebates on exports from 9 percent to 13 percent. "We believe that this step is mainly aimed at encouraging exports from China. With Europe and the US under the control of Covid-19, we believe that Asian markets and BRI countries are the key export destinations for China. Asian markets, including Vietnam, are also primary locations for Indian exports, "said Vishal Chandak of Emkay Global.
While Indian manufacturers export only about 8 percent of their total output, their top export markets are Vietnam (15 percent), the UAE (8 percent), Italy (7 percent), Belgium (6 percent) and Nepal (6 percent). There are currently no direct steel exports to China. China's rising steel exports are likely to send down international steel prices. "In view of ongoing attempts to reduce steel production, China's steel production could outpace the decreasing demand for steel consumption, resulting in an upsurge in inventory and price pressures," said India Ratings and Research, adding that this could be aggravated if the epidemic of the virus worsens in other major economies.
On the domestic sector, the cost of iron ore is likely to stay elevated in the short term due to strong bidding in recent auctions, placing a dent on profit margins if rates begin to decline as predicted from April. Steel plants with a large number of employees can also be severely affected. “Given that thousands work together in these places, we are fearful of any virus outbreak at such places, which can have severe repercussions,” said Chandak.