'Steel demand is expected to pick up in H2'

The escalating trade war between China and the US could be an opportunity for India.

The demand for steel is expected to pick up in the second half of the year on the back of a revival in construction activity and the slew of measures announced by Finance Minister Nirmala Sitharaman to boost consumer sentiment.

“Normally, just before the festival season, purchases start picking up.

"So, with these measures and some more expected in the next couple of weeks, the sentiment is likely to swing a bit,” said Tata Steel chief executive officer and managing director T V Narendran.

The steel sector has been facing demand worries with a slowdown in almost every user industry.

Though finished steel consumption recorded a 6.7 per cent increase year on year in Q1FY20, it had dropped by more than 3 per cent to 25.2 million tonnes quarter on quarter (QoQ).

The weakness reflected on steel prices. While rebar prices were down from Rs 35,751 a tonne to Rs 34,962 a tonne in the first quarter QoQ, it was at Rs 39,658 a tonne a year ago.

Hot-rolled coil prices have dropped from Rs 41,242 a tonne in the fourth quarter to Rs 40,525 a tonne in the first quarter of the financial year.

From the third quarter, however, the drop is almost Rs 5,000 a tonne.

According to analysts, the second quarter is not expected to be any better as the full impact of price reductions in May and June were likely to take effect.

Jayanta Roy, senior vice-president of ICRA, said the second quarter numbers for steel companies were likely to reflect the downward revision in international prices and weak demand conditions in India.

“Also, the full benefit of coking coal correction may not be available to blast furnace players in the second quarter. The reduction in domestic iron ore prices has also been nominal,” he explained.

Narendran said the second quarter was typically the weakest.

“Q3 is when the festive season triggers demand and January to June is generally the strongest period as construction is at its peak.”

Narendran said the auto sector could take a few months to get back into full production, but a revival in construction activity was more imminent.

“There are high stocks in the ecosystem, so auto may take a few months to get back into full production," said Narendran.

But there were other externalities that could help the steel sector.

The escalating trade war between China and the US could be an opportunity for India, he said.

After China announced retaliatory tariffs on US goods, US President Donald Trump tweeted on Friday: “Our great American companies are hereby ordered to immediately start looking for an alternative to China including bringing...your companies HOME and making your products in the USA.”