According to the recent reports, crude steel production has dropped 30% to 1.2 million tonnes as against 1.7 million tonnes in the March quarter of fiscal 2020. Furthermore, it was reported that a consolidated net loss of Rs 4,143 crore ($559 million) during the June quarter is reflective of the covid-19 pandemic.
Steel Production Leaders have clarified that they are readily implementing a comprehensive range of measures that comprises tasks like, fixed costs, reducing production, as well as raising capital to further strengthen the balance sheet and prioritize returns to shareholders.
Recently it was stated that the operations of India’s Steel Production were drastically impacted by the COVID-19 pandemic during the second quarter of 2020 that is after the lockdown measures were lifted the assets are currently running at higher utilization levels than the low levels during the peak impacts during the second quarter.
It was recorded that, the earnings before interest tax and depreciation dropped 23%. The maintenance capital expenditures, cash tax expense, and interest expenses for 2020 were less than Rs 1,850 crore or $250 million per annum.
Steel Production is no stranger to the global market but due to the COVID-19 pandemic, entire global operations have been affected. The most prominent changes in traffic have been observed in Brazil and Europe as they are witnessing significantly lower shipments and sales during the peak of the pandemic, which resulted in stricter restrictions and lockdowns.
The losses incurred, for the second quarter of 2020 was Rs 111 crore ($15 million) as compared to income of Rs 105 crore ($142 million). The losses during the second quarter of 2020 were negatively impacted by COVID-19.
Due to the negative impact on steel segments because of various factors like price-cost effects, loss of profit margin on reduced steel shipments, weaker mining performance which is driven by the lower market price of iron ore shipments, lower iron ore quality premia, and lower coal prices the operating loss for the first half of 2020 was recorded $0.6 billion.
The recorded net loss for the first half of 2020 for ArcelorMittal was Rs 167 crore, which is quite a critical hit for them as compared to just Rs 3 crore of net loss in 2019.
The total recorded steel shipments in the second quarter of 2020 were 23.7% lower as compared to the first quarter of 2020. It can be concluded that the companies have been significantly impacted by the Covid-19 pandemic across all regions with lower steel shipments in NAFTA (-31.4%), Europe (-26.7%), Brazil (- 12.4%), and ACIS (-8.4%)
Companies swift responses, were able to significantly reduce production (including temporarily idling steelmaking and finishing assets) globally in alignment with reduced demand and compliance with government requirements. However, the latter part of the second quarter of 2020, activity levels improved as lockdown measures eased in many jurisdictions and notably automotive sales and production levels increased.
Outlook for 2021
Current focus should be on cost reduction initiatives so that it can yield profit as it navigates the evolving demand backdrop. To move forward, as economic activity recovers the industry must take the required measures like increasing production, leading to the return of some fixed cost so that they do not fall back. All of this will be in line with higher volumes, and so fixed costs per-tonne are not expected to increase. As the world is now slowly resetting, there are signs of activity picking up, but it’s better to remain cautious about the outlook. After closely examining the structural changes that might be required to ensure better well-being in the coming years as demand recovers.
According to India Ratings, domestic steelmakers should be ready to face muted demand and oversupply that may lead to suppressed prices of steel post-lockdown. It is also reported that they are likely to face issues with the availability of workforce and logistics movement. Moreover, the new norm that may emerge is a realignment of power hubs in different sectors. The coronavirus crisis has impacted almost all supply chains dependent on China, exclusively the steel sector. Given the closure of operations across industries, the nation’s steel demand in FY2020-21 is slated to fall by about 15%.
Muted demand as well as oversupply carry the potential to create a loop leading to suppressed prices until maybe there is a substantial uplift in demand or a volume goes out of the market. Although steel and its raw material commodities have been classified as essential goods, the logistical constraints may remain due to the non-availability of the fleet and longer trip time.
Demand from infrastructure, construction, and real estate sectors are likely to be subdued in the first half of 2021. Furthermore, the demand from automobile, white goods, and capital goods sectors is likely to reduce with consumers deferring discretionary spending in the near term.
As such, government spending on infrastructure is likely to be the key driver for a gradual recovery over the second half of the next financial year. The agency informed that it is expecting an inventory build-up primarily of intermediate/semi-steel products with downstream facilities of most players being closed during the lockdown.
Large producers have also kept their blast furnaces operational at a lower capacity of 35-50 percent due to the high cost of restarting the furnace in case it was to be shut. However, small and mid-scale producers with induction/electric arc furnaces remained completely shut during the lockdown.
The built-up inventory may put pressure on steel prices post lockdown and the agencies expects a correction of INR 3,000/MT on average realizations over the coming financial year 2020-21. Indian Steel Leaders have said the sector may need some government support in terms of keeping a close watch on imports from other countries with which India has signed free trade agreements (FTA) with.