India Steel Demand to Surge 7% by FY27, But Price Hikes May Hit a Ceiling
India's steel consumption is projected to hit 175.8 million tonnes by FY27, though price hikes may stall due to import risks and duty thresholds.
India's appetite for steel is set for a significant climb, with consumption expected to grow by 7 per cent year-on-year to reach 175.8 million tonnes in FY27. However, while the volume of demand is rising, the era of easy price increases may be coming to an end. According to a comprehensive report by Equirus Securities, further price gains are likely to be limited as domestic rates edge closer to critical duty thresholds and the threat of cheaper imports looms.
The Demand Engine: Infrastructure and Autos
The report highlights that steel demand has remained remarkably resilient, even when domestic production struggled to keep pace. For the second quarter alone, demand grew by 6.6 per cent year-on-year, totaling 43.4 million tonnes. This growth is being fueled by several key drivers:
- Sectoral Activity: Robust activity in the automotive and infrastructure sectors continues to be the primary engine of growth.
- Government Intervention: Increased government spending and GST cuts have provided a significant boost.
- Private Investment: Sustained private capital expenditure is further strengthening the demand landscape.
Production Lags Behind Consumption
Despite the surge in demand, the supply side has faced hurdles. In the first half of FY27, India's crude steel production rose by 2.9 per cent to 85.1 million tonnes, failing to match the 7.5 per cent increase in consumption, which stood at 84.9 million tonnes for the same period.
The report points to supply constraints at Rashtriya Ispat Nigam Limited (RINL) and among secondary steel producers as reasons for tightened availability, which helped push prices upward during August and September. Secondary producers, in particular, have struggled due to:
- High costs of raw materials.
- Frequent plant disruptions.
- Increased requirements for working capital.
- Tighter availability of coal.
The Price Ceiling: Safeguard Duties and Global Competition
While supply shortages initially drove prices up, Equirus Securities warns that this trend cannot continue indefinitely. Domestic steel prices are now approaching the safeguard-duty threshold of USD 675 per tonne. Once prices cross this mark, the protective duties cease to apply, leaving the market vulnerable.
Furthermore, a widening price gap between the Indian and Chinese markets could incentivize a surge in imports. Indeed, steel imports have already seen a sharp rise, jumping 23.8 per cent year-on-year to 4.1 million tonnes in the first half of FY27. While exports also grew by 26.2 per cent to 3.5 million tonnes, India remains a net importer of finished steel, though this gap narrowed to approximately 0.1 million tonnes in the second quarter.
Looking Ahead: Shift Toward Capacity Growth
The brokerage suggests that the future of the steel sector will no longer be defined by price hikes. Instead, the industry's outlook will depend heavily on actual production growth and the earnings performance of individual companies.
Equirus indicates a preference for investment opportunities rooted in attractive valuations and earnings growth driven by expanded capacity, as the window for additional price gains appears to be closing.