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Coronavirus impact: Steel demand to drop first time in 16 years in 2020; 7.7% dip expected

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Demand for steel in India is forecast to decline by 7.7 per cent at 93.7 million tonnes in 2020 as the fallout of the coronavirus pandemic will see a contraction in demand in a range of sectors including infrastructure and real estate, automobiles, heavy machinery and railways, industry body Indian Steel Association has said. This would be the first time since 2004 that steel demand would contract in a year in India.

At the start of the year, ISA had projected a demand growth of 5.1 per cent for the industry but the revision was necessitated due to the extent of the pandemic that has forced India to go into a total lockdown for 40 days.

"Economic activities have come to a standstill but are expected to restart in a staggered manner after April 20, 2020. It is expected that any kind of demand recovery will take at least another month as overcoming challenges in the form of getting migrant labourers back into manufacturing / construction zones, resetting disrupted supply chains and overcoming liquidity constraints particularly towards working capital needs, cannot be accomplished overnight," ISA said in a statement.

The forecast for almost every sector that uses steel is downcast for this year. Construction, both infrastructure development and real estate development, accounts for the major chunk of steel use, is at a dead halt and recovery is expected to be weak due to the lesser availability of migrant construction workers. Similarly the automotive sector is grappling with supply chain disruptions, both abroad and within

the country and a recovery there is not expected before the beginning of the festive season in the last quarter of the year.

The heavy machinery sector is expected to see continued decline due to weaker private investment, fragile export demand and halted projects in renewable energy, construction and mining.  The railways sector, one of the few bright spots in the last few years, is also likely to see deferment of its capex expenditures this year which will negatively affect growth in steel use.

"We expect growth in all the steel using sectors to remain in negative territory during 2020, before registering a smart recovery aided by a low base, in calendar year 2021," ISA said. "We estimate that the spread of the pandemic and subsequent lockdown will lead to steel demand declining by 13 million tons or by 12.2 percent from a business as usual scenario."

India is one of the few countries that has consistently registered a growth in demand for steel even as other economies have faltered. In the last 15 years, the country has jumped from ninth to second spot in the list of largest steel producing countries in the world. Even in this time of crisis, the decline in demand in India is likely to be much less than other nations and the recovery is likely to be faster. India is one of the only two countries along-with China that is expected to buck the trend and post a growth in GDP this year among all major economies of the world.

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