Stainless Steel Future in India – Post COVID-19


Stainless Steel Industry in India was growing at a healthy rate of 8-9% before the COVID-19 era, consistently overshooting the GDP growth rate as well as global average growth. While a lot of what is to come is speculative in these unprecedented times, an analysis of the ‘recent past’ & ‘near future’ can prepare us for what is to come. We will be focusing our analysis on MSME sector which contributes over 60% of primary production in ‘flat product’ segment. Over 90% of finished product and value-added industry like utensils, cutlery, hardware, pipes & tubes also fall in this segment.
Let’s take a look at what are the implications of Coronavirus on Indian Stainless Steel industry.
Recent Past: March-June
It all started when a complete lockdown of the nation was announced on March 24th remarkably close to the end of the financial year 2019-20. The lockdown kept on increasing in phases, and as a result, there was no production at all in April. In terms of numbers, almost 25% of production capacity was activated post lockdown 2.0, which ended on 3rd May. Almost, 40% of production capacity was activated post lockdown 3.0, which ended on 17th May.
Although the sentiments were negative, prices were on the rise due to a gap between demand and supply. This gap was due to the following factors:
- Most units were operating on single shifts due to the night curfew and labor shortage.
- The import pipeline was almost empty due to lockdown in China immediately after the Chinese New Year Holiday.
- The month of March always comes with a period of a credit crunch, with companies trying to close their books on a ‘high’ note. The credit flows from top-to-bottom of the pyramid stems. Hence, the stocks of finished goods with the wholesalers/distributors/retailor is generally on a low.
- With over 80% of India being categorized under ‘green & orange zone’ after mid-May, shops needed to re-stock. There was a growing demand in Architecture-Building-Construction (ABC) sector as well, as projects, abruptly halted on March 21st, resumed.
- With labor migration increasing, costs of business increasing due to direct & indirect restriction of COVID-19, Indian Stainless-Steel industry saw a rare case of ‘Demand-Pull Inflation’ due to shortage of supply. What’s noteworthy here is that the demand was only almost 40% of pre-COVID levels. Also, despite the gap & price increase, most manufacturing units were struggling to break-even.
- This demand-supply gap was more prominent between primary manufactures and secondary manufactures with most companies opting not to re-start their furnaces as expected capacity utilization wasn’t economically viable.
- With major trade centers, like Delhi & Mumbai, adversely affected, ‘cash-crunch’ was slowly tightening its grip.
Near Future: July-August
It’s been almost three months, and the coronavirus cases are increasing at an extensive pace. However, there has been a complete (almost) lift-off of the lockdown, and some important measures have been taken by the government to infuse some strength in the economy.

It has definitely helped the industry to fill the gap between the demand and supply, which is contracting after the lockdown. The production of stainless steel across the spectrum is now coming back to the normal level. However, the demand is getting weaker.
Let’s take a look at major points of contention:
- Although govt. is reporting promising data with respect to production levels and GST collections, but what’s wrong is what can’t be reported. India’s (in)famous black economy is completely stalled. With various compliances & bank obligations in mind, most firms might be able to match their last FY’s balance sheets, but Indian economy will be adversely affected by what saved it from the various global financial crisis in the last decade. What measures government can take to save what can’t be named, reported or accounted for? This already is and going further will even more severely affect the buying power of consumer, new infrastructure development and cost-of-credit. A lot of companies are facing closure, with the pressure of bad debts mounting on all.
- We are moving from ‘Demand-Pull’ to ‘Cost-Push’ Inflation as the Production cost is increasing due to the following factors:
- Labor shortage
- COVID-19 safety protocols are adding to the sunk cost.
- A lot of small ancillary units are still shut down, leading to higher repair and maintenance costs.
Stainless Steel finished product industry is typically labor intensive. Following social distancing norms in a small MSME setup is challenging, hence affecting production & efficiency.
- A lot of current slowdown in the industry can be attributed to the fact that traditionally, June-August is a phase of low demand in the industry. This is due to the summer season followed by the monsoon season. Apart from a labor shortage, this season is marked by lower demand, especially in ABC sector due to rains. But the big question is, will the market pick-up September onwards? Will this festival season see people spending and putting money into the economy? Will people like to step-out of their houses to shop for non-essential commodities like stainless steel products?
CONCLUSION
Stainless Steel industry is dealing with the brunt of Coronavirus impact, thereby, resulting in production scale down and then, sales. As most of the other sectors are reeling from the impact of Covid-19, demand is lower and equally challenging is the logistics part. There’s no denial in the fact that most of the steelmakers had to shut down or suspend their production in the wake of Coronavirus.
Even though the situations are still unpredictable because this pandemic is far from over, especially in financial hubs like Mumbai and Delhi, the industry is expected to pick up from September onwards in anticipation of a rise in demand and streamlined production. Also, the bid for indigenous products with great initiatives like #AtmanirbharBharat & #VocalForLocal campaigns should help the domestic industry in the long run.

ANISH BANSAL
Managing Partner
Maven AB Inox LLP
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