Why is the level of utilization of metallurgical facilities falling?

The increase in the number of secondary steel units, despite the fact that the production of the alloy remains at the same level, leads to a decrease in the capacity utilization in the global steel industry. This is despite the fact that the long-term scenario of steel demand remains positive.

Capacity utilization in the steel industry in India fell to 77 percent in FY20 from 88 percent in FY11. Utilization is gradually declining and is expected to continue to decline to 74-75 percent in the current fiscal year.

The point is that secondary producers close their small businesses if their production costs rise or demand falls. This is the flexibility that induction furnaces have.

Fitch Ratings expects steel demand to fall by about 10% in fiscal 21. In a recent report, the company said that the share of steel in real estate is lower than that of cement, with sectors other than construction and infrastructure accounting for about 40% of total demand.

At the same time, industry experts say the lack of raw materials such as thermal coal, iron ore, as well as higher electricity tariffs have led small players to close their factories from time to time, creating market fluctuations. In FY2020, of the 77 percent industry average utilization, large steel companies maintained 100 percent capacity utilization, while the small secondary steel segment posted 50-60 percent.