Indian Steel Margins to Stay Pressured Despite Healthy Demand: ICRA

Despite healthy domestic demand of 8% in FY2026, Indian steelmakers' margins will remain under pressure due to weak prices, sticky input costs, and a temporary supply surplus from new capacity additions, an ICRA report projects.

Domestic steel demand is expected to remain healthy at around 8 per cent in FY2026; however, continued weakness in steel prices is likely to keep operating margins of steel producers under pressure, according to a report by rating agency ICRA.

Challenging Outlook and Financial Projections

The report says, the operating environment for domestic steelmakers will remain challenging over the coming quarters amid subdued steel prices, stable but sticky input costs, and an unfavourable global environment.

The agency expects industry operating margins to remain largely flat at around 12.5 per cent in FY2026, lower than earlier expectations of a 100-120 basis point improvement. With muted earnings momentum, industry leverage, measured by total debt to operating profit before depreciation, interest, taxes and amortisation (TD/OPBDITA), is projected to rise to 3.4 times in FY2026, compared with ICRA's earlier estimate of 3.1 times and 3.5 times reported in FY2025.

Domestic Supply Glut Pressures Prices

ICRA noted that the domestic steel industry has witnessed record capacity additions of around 15 million tonnes over the past three to four quarters, with another 5 million tonnes expected to come on stream by the end of the current fiscal. While steel demand growth of around 8 per cent in FY2026 implies incremental demand of 11-12 million tonnes per annum, the sharp rise in supply has created a temporary surplus, resulting in continued pressure on prices.

Domestic hot rolled coil (HRC) prices, which had spiked to Rs 52,850 per tonne in April 2025 following the imposition of a 12 per cent safeguard duty, declined to around Rs 49,500 per tonne by September 2025 and further to about Rs 46,000 per tonne by November 2025. Currently, domestic prices are trading below import parity, reflecting persistent supply-side pressures.

Global Headwinds and Future Outlook

On the global front, ICRA highlighted that structural challenges in the Chinese economy have led to a surge in China's steel exports, which rose to an all-time high of 88 million tonnes during the first nine months of calendar year 2025. With major steel-consuming regions facing subdued economic activity, global steel prices are unlikely to see a meaningful recovery in the near term.

Although India's finished steel imports have declined sharply during the current fiscal, rising trade barriers in markets such as the US and the EU could divert surplus global steel into India. In this context, ICRA said the continuation of the safeguard duty remains critical to protect domestic prices.

Looking ahead, domestic steel mills are planning capacity additions of 80-85 million tonnes by FY2031, involving investments of USD 45-50 billion. However, ICRA cautioned that unless earnings improve significantly, such large-scale investments could lead to higher leverage and increased vulnerability to external shocks, while the sector outlook remains Stable. (ANI)

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