Metal index falls amid decline in steel consumption in August

Metal index was badly battered as heavyweights like Tata steel, Jindal Steel and SAIL, etc. fell between 6 to 8% on a weekly basis. Nifty Metal dropped 3.3% and BSE Metal lost 3.5%.

The steel industry has been impacted due to a couple of reasons according to CARE Ratings. The rating agency in a report has said that the steel consumption has declined in August 2021 during the monsoon season due to slow pace of construction activities and less demand from the auto industry as the industry has been grappling with semi-conductor shortages. Generally, the construction sector accounts for 70% of the total steel consumption or total demand.

The agency added that global demand from international markets continued to remain weak. The reason is that in the first five months of the calendar year 2021, the European Union has exhausted its annual import quota for Indian flat steel products.

Moreover, Vietnam, which is one of the biggest importers of finished steel from India, has been affected by strict lockdown measures due to rising coronavirus cases. This has led to reduced buying and the finished steel exports to the country fell 12% in August, month-on-moth basis.

As the consumption and exports were lower than production in August, it led to rising inventories for steel companies. There were also concerns that this will affect the topline of steel companies and its earnings.

Added to that, Evergrande Group, arguably the second biggest real estate company in China, defaulted in servicing its interest payments. This dampened investor sentiments as they expected a spillover effect that affected the steel companies.

However, there is a silver lining as the Chinese government, recently, decided to cap steel output to control emission and implement ultra-low emission levels by reducing crude steel production. The country has also decided to reduce steel exports to cater to local demand and encourage import by removing duties. This is likely to help Indian steel companies to export to Chinese customers as well other international markets.