ICRA Warns of Margin Compression for Steel Industry Despite Robust 8% Demand Growth
While India’s steel consumption is set to remain strong, domestic steelmakers are facing a “perfect storm” of oversupply and global price volatility. In its latest industry report released today, rating agency ICRA projected a healthy 8% growth in domestic steel demand for FY2026, yet warned that operating margins will remain under significant pressure.
Key Highlights:
Healthy Demand vs. Muted Profits: Domestic demand is expected to see an incremental rise of 11-12 million tonnes per annum (MTPA) in FY2026. However, industry operating margins are projected to stagnate at around 12.5%, significantly lower than earlier expectations of a 100-120 basis point improvement.
The Supply Glut: The industry witnessed record capacity additions of approximately 15 million tonnes over the last year, with another 5 million tonnes expected by March 2026. This rapid expansion has created a temporary domestic surplus, driving prices down.
Price Volatility: Domestic Hot Rolled Coil (HRC) prices, which peaked at ₹52,850 per tonne in April 2025 following the imposition of safeguard duties, have plummeted to approximately ₹46,000 per tonne as of November 2025.
The “China Factor”: ICRA highlighted that structural challenges in the Chinese economy have pushed its steel exports to an all-time high of 88 million tonnes in the first nine months of 2025. This global oversupply, coupled with rising trade barriers in the US and EU, threatens to divert cheap steel into the Indian market.
Leverage and Investment Risks
The report expressed caution regarding the industry’s massive $45-50 billion investment plan to add 80-85 million tonnes of capacity by FY2031. With earnings momentum slowing, industry leverage—measured by Total Debt to Operating Profit (TD/OPBDITA)—is projected to rise to 3.4 times in FY2026.
Girishkumar Kadam, Senior Vice-President & Group Head at ICRA, noted:
“While we project steel demand growth to remain healthy, the sharp rise in supply has created a temporary surplus. The operating environment will remain challenging amid subdued prices and sticky input costs.”
Market Outlook
Despite the margin pressure, ICRA maintained a “Stable” outlook for the sector, banking on the government’s continued infrastructure push and the critical role of safeguard duties in protecting domestic players from import parity pressures.
Strategic Takeaway: Investors and stakeholders should watch for the continuation of safeguard duties and global trade policy shifts, as these will be the primary determinants of whether Indian steelmakers can translate high demand into bottom-line recovery in 2026.
