After hitting a historic low in April, domestic steel demand is only expected to climb back to 25-30% of normal levels this month. While demand across the country had shrunk in the aftermath of the first three phases of the lockdown, business is expected to revive toward the latter half of the financial year.

JSW Steel has ramped up capacity utilisation to 85% in May after restarting operations about a month ago, underscoring the importance of government orders in helping India Inc get back to business.

"We gradually improved our capacity utilisation to 85% in May from a level of 38% in April. We are seeing some traction but it is not from capital goods or auto sector, but from government-induced expenditure in transmission, distribution, solar, metros and pipelines," Seshagiri Rao, joint managing director of JSW Steel, told ET. After hitting a historic low in April, domestic steel demand is only expected to climb back to 25-30% of normal levels this month.

While demand across the country had shrunk in the aftermath of the first three phases of the lockdown, business is expected to revive toward the latter half of the financial year.

"I see India getting back to normalcy hopefully, by September-October," Rao said.

3 L’s Crucial
Liquidity, labour and logistics, or the 3 Ls, have emerged as key challenges as the economy seeks to grind out of the lockdown, Rao said.

Liquidity access is rather difficult across the industry, while migration is an issue with the contract manpower on the shop-floor.

"Our suggestion is that whoever is willing to travel back, the government must provide them with the means to do so," he added. Logistics issues include non-availability of drivers either for railways or road transport.

Separately, Indian steel majors including JSW Steel are increasingly eyeing exports as an opportunity to help offset demand destruction at home.

Steel exporting nations such as Russia, Japan and South Korea were not able to produce and export due to the pandemic. Russia and Japan suffered a 24% and 23% production declines, respectively, in March-April.

"This has created an opportunity for India to seek markets where steel can be absorbed. This is not a permanent opportunity and will be there for another six months,” Rao said.

The main export markets include Nepal, Sri Lanka, Bhutan, Bangladesh and Myanmar, followed by the Philippines, Taiwan, Malaysia and Vietnam, United Arab Emirates, Saudi Arabia, Bahrain and Kuwait. "The 9% rupee depreciation last year and another 6% depreciation in the quarter have also boosted exports," Rao added.

MSMEs Key to Revival
Joint Plant Committee data for April showed that domestic steel production declined 69%, and demand had fallen by 91%. Only the top six players --Tata Steel, JSW Steel, SAIL, JSPL, ArcelorMittal Nippon Steel and RINL -- were producing steel.

"That means secondary players that comprise 40% of output were not able to produce. So it is important that MSME lending of Rs 3 lakh crore should happen quickly to help revive the secondary steel sector," he said.

JSW Steel has large capex plans to raise capacity by 35%. There were 15,000 workers earlier at Dolvi plant but it has been able to retain only 30% or 3,000 of them.

"We hope to bring them back and complete 6-7 months of pending work. That is why we pushed back our capex plans to next year," Rao said.