Can Covid Comeback Derail Steel Upcycle?

The Covid pandemic has returned in a mutated and deadlier form and is now testing the resilience of stupendous recovery of the steel sector across the globe. Till end of April, it was being widely believed that the upcycle in the international steel prices would continue well into FY22 following sharp revival in demand in India and other parts of the globe, particularly in China on the back of stimulus package.

- Sumit Maitra & Tamajit Pain

This resulted in firm global steel prices which in India appreciated by close to 50 percent and even more in international markets since February 2020.

Steel sector honchos believe there is some steam still left in steel prices despite the devastations being unleashed by the second wave of the Covid-19 pandemic.

But that assumption is largely based on the dry fact that domestic prices are still ruling at a discount to global prices and elevated iron ore prices might continue to support steel prices.

A very real threat to the steel sector comes from the lockdowns and disruptions, planned and intermittent, across the country forcing shopfloors to close down in several sectors beginning May.

From being seen as the superstructure on which India’s growth story is being built, steel sector has now turned into a key lifeline supporting the country’s sudden surging need for medical oxygen.

The oxygen in its liquid form which is usually kept in store at every primary steel maker’s facility is being diverted to hospitals and medical facilities.

While primary steel makers are keeping their furnaces running with the gaseous oxygen, the secondary steel plants, the fabricators and other steel processing facilities are being forced to close down with a ban on use of industrial oxygen.

Closure of showrooms and logistical disruptions have forced most of the auto companies to keep their factories shut for most part of May.

This would undoubtedly impact steel overall steel consumptions in coming days.

The macro story