 "steel, steel industry")
Recent developments in China seem favourable for the Indian steel sector.
Steel production cuts are planned in China and this should help balance demand-supply, thus reducing the chance of cheap Chinese exports.
Given the Directorate General of Trade Remedies (DGTR) recommendation of final safeguard duty for three years, the outlook for steel is turning favourable.
The Q1FY26 results for the sector were mixed, or marginally positive, as construction was also hindered by unseasonal rains.
However, a pick up is expected in infrastructure activity in H2.
Steel companies delivered aggregate earnings before interest, taxes, depreciation and amortisation (Ebitda) of about ₹21,000 crore in Q1FY26, up 8 per cent quarter-on-quarter (Q-o-Q), exceeding expectations.
The management’s commentaries highlighted that Q2 was likely affected by seasonally-soft demand, but August saw steel price hikes. Coking coal prices are expected to ease by $5–10 per tonne, while iron ore prices remain stable. Along with volume ramp-ups, this may push up sector margins and revenues.
For the rest of FY26, consensus expects limited change in projections. One concern may be the seasonal impact of rains, which may limit coal production by Coal India.
While domestic demand may be subdued, developments on the supply side are positive. Budgeted government capex in infra, and goods and services (GST) recalibration are possible drivers.
The safeguard duty extension for three years indicates protection for the long-term and potentially boosts valuation.
It could, in theory, lead to a premium over import pricing but in fact, domestic steel prices are currently at a discount of 8-9 per cent to import prices.
In essence, the safeguard duty seems to be lowering import volumes rather than pushing up domestic prices and so long as domestic prices remain at discount to imports, steel makers may liquidate inventory. In the near-term, US dollar weakness is also pushing up global steel prices which affords more leeway and protection for domestic manufacturers.
China’s current policy is aimed at addressing excessive, unsustainable competition within the country.
The policy is targeting industrial overcapacity in key industries, including steel, through regulatory tools like environmental measures, production caps, and reduced subsidies which should shut down uncompetitive capacity.
In steel, the policy is targeting 30 million tonnes (mt) of capacity (3 per cent of production) and the outcomes expected include production cuts, increase in profits, and fiscal revenue.
India’s domestic market is pinning hopes on post-monsoon recovery from September. India is the world’s second-largest steel producer, after China. India produced nearly 152 million tonnes of crude steel in FY25 and total steelmaking capacity reached 205 million tonnes, up 14 per cent from FY24.
By 2030, that target is 300 million tonnes per annum (MTPA) of capacity, which will require a consequent ramping up of iron ore supply and coal supply, among others.
However, although India only consumed 149 mt in FY25, it saw imports due to cheap Chinese steel outpricing domestic steel.
The safeguard duty of 12 per cent seems to have altered the dynamics. In FY25, operating margins were also flat for majors like Tata Steel and JSW Steel. However, margins improved by 150-200 basis points (bps) quarter-on-quarter (QoQ) in Q1FY26.
Analysts project a likely compound annual growth rate (CAGR) of 8-10 per cent in domestic steel consumption volume between FY25 and FY27.
Importantly, there will be little direct impact on domestic steel producers from the US tariffs. However, Tata Steel’s European operations will have US exposure.
Emission reduction targets for steel majors may lead to higher costs as decarbonisation takes hold as emissions have to be reduced by 9 per cent from FY24 by FY27.
To some extent, the higher costs may be offset by the policy of re-allocating captive iron mines, to ramp up ore supply for integrated operations.
Most steel stocks have seen gains in the past 30 days, comfortably outrunning the benchmark Nifty.
