India’s steel demand growth: Since 2022, the steel cycle has weakened. Construction has slowed, interest rates remain high, and trade disruptions persist. The West Asia conflict has added uncertainty and pushed up energy costs. The region, once expected to support demand, has contracted.
China’s demand is projected to fall 1.5% in 2026. In developing economies excluding China, growth is expected to slow to 2.5%, down from about 5% in recent years. The cycle is bottoming out. Global demand may grow 2.2% in 2027 to 1,762 Mt, ending three years of decline. Developed economies are expected to return to positive growth.
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India’s divergence and its limits
India’s outperformance is clear. It is also fragile. Growth driven by public spending can mask inefficiencies. As capacity expands, those inefficiencies will surface.
India’s steel capacity is being scaled up aggressively, with policy targets pointing towards 300 million tonnes by 2030. Capacity additions are running ahead of stable private demand. If demand moderates, utilisation rates will fall, compressing margins across the sector.
Input cost pressures
India has iron ore, but not coking coal. Blast furnace steelmaking depends on imports. Supply disruptions in Australia have raised costs in the past. This vulnerability persists.
Raw material risks extend beyond coking coal. Scrap availability remains limited, constraining the shift towards electric arc furnace routes.
Energy is another constraint. Steelmaking is energy-intensive. Power and fuel price volatility affects margins.
The shift to low-carbon steel — electric arc furnaces and hydrogen-based processes — will require capital and technology. For an industry with thin margins, this is a financial strain.
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China overcapacity and price pressure
Global overcapacity remains a structural problem. China’s demand is weakening, but its production capacity is intact. Excess output is exported at competitive prices, pushing down global prices.
India imports cheaper steel. Domestic producers struggle to compete. Safeguard duties and anti-dumping measures offer temporary relief. They do not address cost competitiveness.
Trade barriers and decarbonisation
Export prospects are constrained. Developed economies are tightening trade rules. The European Union’s carbon border adjustment mechanism will raise costs for carbon-intensive exports. Indian producers face a trade-off: invest in decarbonisation or lose export markets.
India’s climate commitments will increasingly shape steel sector economics. Under the Paris Agreement, India has committed to reducing emissions intensity of GDP by 45% by 2030 from 2005 levels. Steel accounts for a significant share of industrial emissions.
The government is working on a green steel taxonomy and pilot projects under the National Green Hydrogen Mission to decarbonise hard-to-abate sectors. However, green steel production costs remain significantly higher than conventional routes.
Without clear carbon pricing signals, domestic demand for green steel will remain limited, even as export markets begin to penalise carbon-intensive production.
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India’s steel demand concentration risk
Domestic demand depends heavily on public capex, especially infrastructure and railways. This is not stable demand.
Private investment in real estate and manufacturing remains uneven. Demand composition is also narrow, with construction accounting for a large share. A slowdown in these sectors will transmit quickly to steel demand.
Logistics remains a structural disadvantage. High rail freight, port handling costs and last-mile inefficiencies raise delivered steel prices. These costs erode competitiveness against imports, particularly from East Asia.
Fragmented industry and financial stress
Large producers coexist with smaller firms that lack capital and technology. These firms operate at lower efficiency and are more exposed to cost and price shocks.
Parts of the sector remain leveraged. Interest rate cycles and input cost volatility can strain balance sheets, particularly for smaller players.
Strong demand offers a window. Structural constraints are unchanged.
Reducing dependence on imported coking coal, improving scrap availability, lowering logistics costs, investing in cleaner technologies and strengthening logistics are immediate priorities. Demand must broaden beyond public spending.
Global demand will remain weak. Geopolitical risks will persist. India’s role will grow. The industry’s ability to address long-standing constraints will determine whether growth sustains.
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