Indian steel sector could step in as alternate supply chain link as world grapples with coronavirus

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Experts in India are of the opinion that the outbreak of the novel coronavirus, COVID-19, presents an opportunity for India to become an alternate supply chain to China in metals, especially steel.

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TV Narendran, Tata Steel’s chief executive and managing director, is one of the people who believes just that.

While addressing a meeting of business representatives recently, he said the de-risking of supply chains originating from China, which had started following heightened concerns of a U.S.-China trade war, was likely to be accelerated on the back of concerns over the recent outbreak.

Narendran told reporters on the sidelines of the conference that the coronavirus could be an opportunity for India. That journey had started with trade issues between the U.S. and China; now, with the virus outbreak, there will be even more reason for people not to be overdependent on any one country.

Experts are of the opinion that if the virus’ spread extends beyond April 2020, it would negatively impact China’s 2020 steel demand growth.

Meanwhile, a report by ratings agency India Ratings (Ind-Ra), as reported by CNBCTV18, has said it expected the COVID-19 outbreak to increase the downside risks for the global steel sector in the near term, with the already modest domestic steel prices impacting the operating margins.

But the extent of the impact will depend on the extent of the spread of the virus to other parts of the world, it added.

The Ind-Ra report also said the demand-supply imbalance could be aggravated if the virus outbreak worsened in other large, steel-producing countries, such as Japan, South Korea, India and the U.S.

In India, at the time of the writing of this report, the number of COVID-19 patients were at 50.

The report pointed out China’s local steel demand had reduced drastically in Q1 2020, creating an increased inventory pileup of about 20% year on year — leading to steel price pressures globally and restricting any major price increases in India over March 2020.

In India itself, consumption has started to show a slowdown.

As it is, Indian steel companies had announced a price hike of between U.S. $7-10 (₹500-₹750) a ton on hot-rolled coil prices in March, the Hindu Business Line reports, despite a weak trend globally.

Prices have been on a steady increase since last November despite moderate domestic demand.

But now, with the outbreak of the virus adding pressure to the macroeconomic factors, it could mean a further fall in domestic steel consumption and, subsequently, pressure on steel prices in the coming months.

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Of course, if there was no outbreak, there would have been no pushback on the hiking of steel prices almost every other month, nor would there have been any stock pileup, as seen in China.

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