 "Steel industry, Iron and steel industry")
The Indian steel industry’s demand is expected to grow 8.5-9.5 per cent in 2025-26 (FY26), exceeding the decadal compound annual growth rate of 7 per cent. While healthy demand from the infrastructure and construction sectors and reduced steel imports will fortify crude steel production, expected to grow 10-12 per cent year-on-year (Y-o-Y), the industry, specifically the mid and small steel manufacturers, may need to brace for rising costs.
A sizeable share of the infrastructure-related demand will emanate from the government’s budgetary capex push through the core ministries — railways, roads, rural and urban development, power, renewable energy and civil aviation. This spending has intensified 11.6 per cent from the revised estimate of FY25 even as the roads, railways, and urban housing have increased their collective capex 9.8 per cent Y-o-Y in Q1FY26.
Given the infrastructure and construction push, demand for long steel is expected to grow 7-9 per cent in FY26. The production of long steel increased 8.7 per cent Y-o-Y in Q1FY26, with mid and small steel mills accounting for 72.4 per cent of this production.
As of FY25, secondary steel plants, including micro, small and medium enterprises (MSMEs), accounted for about
47 per cent of India's crude steel capacity of 200.3 million tonnes, according to the Ministry of Steel’s joint plant committee.
However, it is noticed that several small mills have either expanded capacity or integrated upstream or downstream capacities, thus moving out of the MSME bucket.
The MSMEs primarily produce long steel products — reinforcing bars and wire rods — using induction-based furnaces that rely on raw materials such as steel scrap, sponge iron or billets. Hence, the use of imported low-ash thermal coal is a key aspect of their cost dynamics.
Thermal coal prices are expected to remain supportive, while Indian iron ore prices will rise marginally this fiscal, driven by the steel market. However, the profitability of steel MSMEs is likely to be constrained by rising raw material costs, particularly of iron ore, and higher power tariffs from hikes by West Bengal, Chhattisgarh, and Haryana, and some state distribution companies.
Concurrently, the mandatory Bureau of Indian Standards certification for imported raw materials is likely to increase compliance costs and complexity for smaller players, giving larger domestic manufacturers an advantage.
The recent safeguard duty — such as the 12 per cent duty on flat steel imports — was aimed at protecting domestic producers. While helpful to integrated firms, it could raise raw material costs, especially for MSMEs relying on spot markets.
Notably, the Directorate General of Trade Remedies recommended the 12 per cent duty in year one, followed by 11.5 per cent and 11 per cent in the next two years.
As a result, steel MSMEs will face challenges due to rising costs and compliance requirements, which may impact their profitability.
Decreasing volatility in steel prices will provide better visibility of margins for steel rerollers and traders, but the higher capital costs for technology upgrades and inflationary pressure will increase the cost of doing business.
