Steel sector earnings to stay subdued in FY26 amid oversupply: ICRA

ICRA said steelmakers' margins remain under pressure as oversupply drives domestic prices to steep discounts to import parity, and warned of a negative outlook if headwinds persist

India’s steel sector is likely to face subdued earnings through FY26 as domestic prices remain under pressure from oversupply and weak global demand, ICRA has warned in its latest outlook.

 

What is ICRA’s outlook for steel sector earnings in FY26? 

“Earnings are expected to remain subdued as margins have tightened due to softer prices,” said Sumit Jhunjhunwala, vice-president and sector head, ICRA, during the agency’s webinar on steel industry trends and outlook.

 

He said EBITDA per tonne is expected to be around $108 in FY26, which is at the lower end of ICRA’s $100 to $150 per tonne range for a stable outlook.

 

“If there are any further cost, price or demand headwinds in 2027, there is a real possibility of revising the sector outlook to negative,” Jhunjhunwala cautioned.

 

Why are domestic steel prices under pressure? 

Hot-rolled coil (HRC) prices are trading at historically steep discounts to import parity. Jhunjhunwala said domestic prices were around Rs 46,000 per tonne, compared to landed import costs of around Rs 54,000 per tonne in early December, creating a discount of almost $93 per tonne.

 

He described the situation as “quite unusual historically”, adding that domestic prices are typically at parity or at a slight premium when demand is strong.

 

The pressure stems from nearly 15 million tonnes of capacity commissioned in recent quarters alongside muted global demand. Capacity utilisation is expected to be around 80 per cent this fiscal. Despite this, Indian steelmakers plan to add nearly 80 million tonnes of capacity by 2031, involving investments of $45 to $50 billion.

 

How are global trends affecting steel demand and prices? 

Global conditions remain challenging. Jhunjhunwala said China’s real estate sector has seen negative growth in investment for more than 36 months, depressing demand. Chinese steel exports have doubled from about 60 million tonnes to nearly 120 million tonnes in a decade, adding to global price pressure.

 

European, Japanese and Korean production remain below pre-pandemic levels, while the United States is the only major Western market showing growth.

 

What did ICRA say about the safeguard duty and import risks? 

On trade, Jhunjhunwala said the 12 per cent safeguard duty helped curb imports as monthly volumes contracted around 33 per cent year-on-year. “While there is a recommendation to extend the duty for three years, no formal announcement has come yet, and the relief may be short-lived without further policy action,” he said.

 

With US and EU protectionism rising, he warned that steel redirected from those markets could target India.