India’s steel demand is likely to fall by 10pc in the April 2020 to March 2021 financial year because of a slowing economy, ratings agency Moody’s said. Steel demand was 100.1mn t in 2019-20.

Plummeting automaker demand and weakness in the construction, infrastructure and shipbuilding sectors will drive a decline in Asian economies, Moody’s said.

India’s steel demand dropped by 63pc from a year earlier to 9.1mn t in April-June, according to steel ministry data collated by Argus. Consumer spending fell during the quarter as a rising number of Covid-19 cases prompted a nationwide lockdown, which sent migrant labourers back to their home towns and stalled manufacturing, construction and supply chains.

India’s crude steel output fell by 44pc from a year earlier to 14.87mn t in April-June, steel ministry data show.

Economic activity likely picked up in July. But Moody’s warned of a downside risks to its steel demand forecast, given the possibility of a second or third wave of virus infections and a deeper economic slowdown. Real GDP is likely to contract by 3pc in 2020, it said.

Private-sector Tata Steel and JSW Steel, the Indian steelmakers rated by Moody’s, will bear the brunt of the forecast 10pc drop in steel demand. But their competitive production costs, use of cheaper domestic iron ore and brand strength will help them to minimise volume declines and generate above-average profitability, the ratings agency said.

Declining domestic demand means Indian steelmakers will continue to divert their surpluses to export destinations such as southeast Asia, the Middle East, southern Europe and China. India’s total steel exports in April-June increased to 3.26mn t from 1.05mn t a year earlier, steel ministry data show.

But export profits will be lower than those for domestic sales, with the latter benefitting from import-parity and anti-dumping duties, Moody’s said. The Argus assessed Indian domestic hot rolled coil price was at 34,500 rupees/t ($461/t) ex-Mumbai on 24 July, while Indian export offers were at $470-475/t cfr Vietnam on the same day. Freight to Vietnam is about $12-15/t, depending on volumes shipped.

Indian steel mills are unlikely to add any new capacity until profitability and cash flow returns to pre-pandemic levels, Moody’s said. It expects the country’s strongest steelmakers to increase utilisation rates from 50pc in April to more than 80pc by March 2021.