Stainless Steel Future in India – Post COVID-19
We all know how things are rolling from last year all over the world. Situations were stabilizing gradually in India, and then suddenly, had been hit by a horrific second wave of Coronavirus.
Of course, the fresh cases numbers are decreasing on a daily basis, and even the recovery rate is speedily improving. However, this second wave is surely threatening for the booming stainless-steel industry in India along with the upcoming ‘inevitable’ third wave of covid-19
Let’s take a quick look at how the Demand and Supply of Stainless Steel impacted due to COVID-19 throughout the country in 2021.
Demand & Supply in 2021
With Q1 of 2020-21 virtually wiped out, things started improving in Q2, supply side started stabilizing. Although, India was going through the first wave in Q2, the constant rate increase meant demand didn’t taper off.
Q2 by far exceeded everyone’s expectation in terms of both sales & profitability. The trend was expected to continue in Q3, but the budget announcement literally dried the demand. Huge hoarding during Q2 meant virtually no demand Feb-March Q3 because everyone was forecasting huge inventory loss. As inventories eased during mid-March, demand started to come in by the end of Q3.
Unfortunately, the second wave hit India during the first week of April, with some areas affected more than others, but gradually spreading everywhere (even in towns). Argon Gas, which is majorly consumable, wasn’t easily available in the market for stainless steel pipe manufacturers as well as fabricators.
The situation in the East of India was upside till April 30th, with demand and supply both. However, Post May 1, there were many regions that went under lockdown because of the second wave.
Stainless Steel factories were only processing the current stocks, no new orders. The current cash flow and demand is obviously impacted by the hit. Nevertheless, the future still looks sturdy once the peak of the wave passes.
The production of stainless steel in Q1 (21-22) was consistent throughout the region as South India has always been a heavy market for imports.
Currently, the production percentage in the South, specifically in Tamil Nadu, Kerala etc. is 70 to 80% because of the lockdown restrictions. The demand for stainless steel has also been consistent throughout the period.
As markets and industries across Delhi- NCR had largely been shut in the last 30 days. Practically, there is no production of stainless steel. Although, the government of Delhi had allowed the industries to operate with in-house labor, but only 10-20% opted for this option as there was fear in the community of the COVID-19 second wave mutant.
Apart from that, UP and Haryana were much better with almost 70-80% of production, which was happening till April 30th. Yes, demand was equally adequate.
Now, Delhi-NCR regions are gearing up for re-open while activities in UP and Haryana are at 30-50%. Moreover, the availability of raw material and consumables including gas are gradually improving now.
The Western regions of India had been operational throughout the Q1. Throughout that period, the production, as well as demand for stainless steel, was almost 80-90%. However, the local demand and liquidity came down majorly during the last month i.e., in the month of May.
After ease in lockdown restrictions, there are strong indications of the market prices and easing of norms in the coming days. The industrialists and dealers are eager to produce and stock. The current production levels are at 60% for now in the West regions. Let’s see how the situation unfolds soon.
COVID related challenges
Currently, the government of different states are announcing some ease in lockdown restrictions. Some states in India are still under strict lockdown and situations are unpredictable. And, if the situation continues to remain the same, then it might lead to the following:
1. Considering the slow cash flow within the market, the payment release might increase by 15 to 30 days possibly.
2. Stainless steel manufacturers might have to hold more inventory of raw material and other consumables to increase the pace of production.
3. Now the situation all around the country is quite evident. There are 90% chances of an increase in inventory cost as per the given COVID protocols, and undeniably, the cost of production will also go up.
4. The lead time for stainless steel manufacturing orders might increase.
5. One of the major challenges is with MSME units. To maintain social distancing norms and other COVID protocols become a little challenging because of the shop floor like areas, and in this scorching, heat wearing PPE kits and double masks in factories is definitely tough.
6. When the lockdown was announced, the workforce exodus had only been 20 to 30% this time.
7. Lastly, the global parameters are suggesting inflated demand in Q2, hence, there are threats of imports in the stainless steel industry.
To conclude, the stainless steel industry was heavily protected, but the budget announced by the government totally changed the scenarios. And, then, lockdown came up. There’s a total mismatch in demand and supply because of the reduction of production. The major firms saw a substantial jump in revenues and margins, but MSMEs are still struggling to get back to normal. Let’s see how the situation unravels in the upcoming days!
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