India Steel: 8% Growth Ahead, But Margins Squeezed

India's steel sector anticipates a robust 8% growth in domestic demand for FY26. Despite this positive forecast, steel producers are expected to face continued pressure on their profit margins. The rating agency ICRA projects operating margins to remain relatively flat at approximately 12.5% for the fiscal year, a revision from earlier expectations of improvement. This stabilization is attributed to an incremental supply creating a temporary market surplus, which is consequently affecting steel prices.

Global steel prices are under pressure, largely influenced by structural headwinds in China. China's steel exports surged to an all-time high of 88 million tonnes in the first nine months of CY2025, significantly impacting international markets. Chinese hot-rolled coil export prices have averaged lower year-on-year, contributing to subdued global pricing. While India has seen a sharp decrease in its finished steel imports, approximately 33% year-on-year, the continuation of safeguard duties is emphasized as crucial to prevent a resurgence of imports.

Looking ahead, the operating profit per tonne of steel production is estimated to be around USD 108, a slight decrease from FY2025. The industry is embarking on substantial capacity expansions, targeting an addition of 80-85 million tonnes with significant investments. However, the feasibility of these ambitious plans hinges on improved earnings, as large-scale investments could increase industry leverage. The transition to green steel is also noted, with its share expected to rise substantially by 2050, though current economic challenges and high green hydrogen costs pose constraints to widespread adoption in the near to medium term.