Alloy and stainless steel makers revisit strategy in COVID times

Alloy steel makers, hit by the automotive sector slowdown, explore alternatives

Steel-industrial-smelter-furnance-reuters Representational image: A worker observes an electric furnace inside a steel factory on the outskirts of Jammu February 12, 2018 | REUTERS/Mukesh Gupta

The COVID-19 pandemic has forced alloy and stainless steel makers to revisit their strategies to deal with the situation.

The segment was already grappling with a slump in demand from key end-user segments such as auto and construction when the pandemic hit. Due to this, many alloy steel and stainless steel manufacturers have now started looking at risk mitigation through diversification into non-auto and construction sectors.

Per a latest report by CRISIL, alloy steel demand is expected to grow at a double-digit rate in the next five years, led by better business opportunities from the non-auto sectors. The non-auto sectors are pegged to account for 4-6 lakh tonnes of alloy steel in the next 2-3 years, supported by the growing need for infrastructure development. 

The CRISIL report states that the National Infrastructure Pipeline (NIP) alone offers 34,761 opportunities worth $747.69 billion across roads and highways, railways, urban public transport, aviation, airports, ports and the like. In fiscal 2020, non-auto sectors consumed less than 35 per cent of alloy steel in India.

However, with the pandemic, they are now increasingly exploring segments outside the automotive and the construction segments. They are expected to capitalise on the increasing demand from the oil and gas, power, defence, railways and off road vehicle segments that offer attractive opportunities. As per the CRISIL report, the demand from the non-auto segment is expected to double to 0.8-0.9 million tonnes from 0.4-0.6 million tonnes at present. 

The Railways are expected to generate a stupendous demand for alloy steel over the next two fiscals with about 1,042 km of rail lines to be constructed under the Dedicated Freight Corridor (DFC) initiative as the government targets completion next fiscal. Several warehouses, stations, loading and unloading infrastructure will come up as and when the tracks are laid. 

It is expected that the share of railways in alloy steel consumption will increase from 4-5 per cent to 6-8 per cent by 2025. Rolling stocks (coaches, wagons, and locomotives) and hard stock (track accessories) are the main components where alloy steel is used in the railways sector in India. Axles, wheels, coach,  underframes, crankshaft, connecting rods and others like gear and bearings are the main alloy steel components.

The demand for alloy steel is also expected to increase from the oil and gas segment too. Many alloy steelmakers are also looking at the defence segment.  The demand in the defence segment is expected to mainly come from the alloy steel components used in the defence segment such as road wheel arms, crankshaft, flywheel, track shoe, torsion bars and other forged components. 

At the same time, there are growth opportunities for high-value grades of stainless steel in non-consumables as the consumption of stainless steel has been rising due to strong demand from end user segments. According to CRISIL, stainless steel that was initially used for kitchenware and some industrial goods has over the years found application in automobiles, railways, process industries and building and construction, too. Domestically, the 200 series of stainless steel is widely used due to the associated low production cost.

Interestingly, India consumes around 2.7 million tonnes of stainless steel. It is expected that there will be increased usage of stainless steel in the automobile, railway and transportation sectors, that is expected to support demand and profitability of the industry. 

Between fiscals 2016 and 2019, alloy steel demand grew at a CAGR of 11-12 per cent a year to 6.3 million tonnes. The growth rode on increasing demand from power, oil and gas, and railways, even as the auto sector, which accounts for as much as 65 per cent of alloy steel demand, logged 9-10 per cent.

The tide turned in fiscal 2020, when a decline of over 15 per cent in automobile production, together with a slowdown in other key consuming sectors such as machinery, power and construction equipment, translated into a 17-19 per cent drop in alloy steel consumption to 5.1-5.4 million tonnes. This was further aggravated by a slowdown in the construction sector that also impacted the demand from capital goods. This fiscal the demand for alloy steel is expected to slacken by over 20 per cent due to the pandemic resulting in low demand from the automobile, infrastructure and construction segments.


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