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The Demand For Steel Is Peaking
The negative impact of the second wave of the pandemic on the demand and production of steel is not likely to whittle down all of the resurgence that has been evident of late
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The pandemic is one of a kind and unlike those in the past centuries. Owing to this uncertainty, it is very difficult for business and industry to plan their next course of action. As far as the steel industry is concerned it is boom time the world over. Demand for steel is peaking. Production is on full stream.
In India as in other developing countries though, downstream steel users, be they in infrastructure or construction, are bound to be impacted by the pandemic and the measures that will become necessary to contain it. The more industrialised nations, however, are bound to witness significant progress, as the GDP growth rate in China indicates. The United States is about to begin heavy investment in the infrastructure sector, which will fast-track the economic recovery there. The economies of Europe and the UK are also opening up.
In my view the impact of the pandemic on the steel industry in India too, will be marginal. Before the second wave of infection hit us, production and demand were both at a peak. At best we may have to contend with a mild hit on the demand and so production of steel.
Globally, China is going to be the joker in the pack even as the US, the UK and Europe accelerate production. With a year-on-year growth of above 20 per cent, steel production in China should be substantially higher. China has got rid of its old mills, thus reducing production. It has also put a caveat on exports of iron ore, the prices of which are sky rocketing.
A factor which is disturbing in the short run is the mutating nature of the virus which is difficult to control. The good news is that scientists the world over are predicting that this will be short lived. Earlier in the 2020-2021 financial year steel production took a hit across the board, impacting economic growth the world over. China, of course, was an exception, where the GDP growth was above 20 per cent.
Minimal Impact on Demand In India, as soon as the first wave subsided, production activity picked up, bringing about strong economic recovery, with migrant labour rejoining the workforce. The second wave may turn the tables, but will hopefully be short-lived as is being predicted. In my estimate, the negative impact of the second wave of the pandemic on the demand and so production of steel will not exceed 10 per cent to 15 per cent.
The world over the steel industry has started doing well again and this is likely to continue. China declaring a lower production and tariff regulations on iron ore may push up steel prices, leading to inflation. Developed nations like the US, the UK and those in the EU and even other developing nations have announced substantial investments in infrastructure projects, in building of roads, bridges, housing and even expansion of steel-making capacity.
This will lead to an acrossthe-board increase in their domestic production of consumer durables, leading to strong economic grow th, hope f u l ly. But of course, only time will tell of the trends as they unfold.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.