India depends largely on migrant labour, restarting construction and infrastructure projects will be a challenge. The lockdown during the first quarter followed by the monsoons in the second quarter; the demand from infrastructure, construction, and real estate sectors are likely to be subdued in the first half of the FY21.
|| Rhythima Agrawal
As per a report by Ernst and Young, there has been a strong demand from various domestic industry users, but the demand from some segments is likely to remain dull. The real estate sector is also witnessing a demand slump due to excess inventory and severe price pressures. The auto sector has also seen stagnant growth, resulting in lower demand for Steel.
Saurabh Bhatnagar, Partner and National Leader of Ernst and Young India, said, “Domestic demand will remain subdued until sectors such as auto, infrastructure, real estate construction, electronics and consumer durables post a sustained recovery.”
N.Chandrasekaran, the Chairman of Tata Steels said, “A contraction in the global GDP is not at all a good sign for the global steel sector because the steel demand is positively correlated with the economic growth”.
The data from the Centre for Monitoring Indian Economy, a business information company, showed that till June end, the number of stalled projects had gone up from 1046 to 1,377 in December. The statistics from an online data bank named Projects Today showed that announcements of the new project in electricity, infrastructure, irrigation, manufacturing and mining sectors fell to 1,241 valued at Rs 98,000 crore in the June quarter from 2,500 new projects valued at Rs 3.86 Lakh crore in the same period last year.
The Indian Steel sector is at a disadvantageous position due to the limited availability of some of the essential raw material such as high-grade lumpy Manganese ore and Chromite, coking coal, Steel-grade limestone, refractory raw material, nickel, ferrous scrap.
The Covid-19 pandemic has steered the industries towards digitization. The Indian steel-makers should move towards digitizing their operations. Paresh Vaish, the Business Partner at EY India, said, “The COVID-19 impact has triggered a sharper digitalization adoption curve across industries. Now, the Indian steel-makers should enhance the penetration of digital solutions as a key enabler for efficiency, quality and reducing the operating cost”. The report by Ernst and Young highlighted concerns of the ongoing iron ore shortage scenario. In India, there is a significant shortage of iron ore due to iron ore exports. The per ton price of iron ore has increased by Rs 700, while that of steel pellets has gone up by Rs 300- 350.
The report suggested manifold solutions to revive the steel sector. Opening the mining sector and rapid investment in the infrastructure sector might lead to a growth in the capital goods, which consumes nearly 15% of the domestic Steel productions. The report also stated that there is a need for rapid investment to fund research on Steel as a sustainable substitute of wood, plastic, concrete and aluminum. Indian steel industries should adopt digital technology for sustainable growth.