by Sehul Bhatt, Director - Research, Crisil Intelligence
Domestic demand, low export dependency supportive; steel recyclers face tighter scrap market
Strong domestic demand and lower dependency on exports are expected to steer India’s iron and steel industry past the tariffs imposed by the Donald Trump administration.
Effective March 12, the US terminated the temporary exemptions for imports of steel and derivatives from its trade partners, resulting in the imposition of an ad valorem duty of 25% on all iron and steel imports.
The US gambit, coupled with an ongoing global supply glut can elicit countermeasures from trading partners, amplifying uncertainties in trade and markets, and ultimately affect economic growth.
A seven-year itch
It all began in 2018 when Trump, 15 months into his first tenure, imposed a 25% additional duty on imports of steel products, citing national security concerns.
In response, the European Union (EU) slapped its own 25% safeguard duty. Canada, the UK, Morocco, Mexico, South Africa and others undertook countermeasures as well.
Later, however, Argentina, Australia, Brazil, Canada, Japan, Ukraine, the UK negotiated favourable deals with the US over a period — the UK after Brexit — and got their levies reduced.
These arrangements led to a torrent of steel exports to the US, and left mills there a good 500-600 basis points short of their targeted capacity utilisation of 80%.
On the other hand, competitively priced imports helped end-user sectors in that country secure their profit margins despite higher overall costs and inflationary pressures.
Returning to office in 2025, Trump took a more aggressive stand vowing to “move fast and break things”.
His tariff policy shifted from being predominantly China-focussed in 2017, lassoing Canada, Mexico and the rest of the world, citing concerns over the humongous US trade deficit, immigration issues, and illegal drug flows.
But frequent policy pronouncements followed by reversals and revisions were spawning uncertainty everywhere. To wit, the US Economic Policy Uncertainty Index spiked to 542.52 this March, compared with a 7-day average reading of 110.86 since 1985, handily surpassing peaks seen during the Global Financial Crisis of 2008 and the Covid-19 pandemic.
In February, the US government revoked exemptions granted earlier to some countries and imposed 25% tariff through a proclamation titled 'Adjusting Imports of Steel into the United States'.
Dynamics of US steel industry
In calendar 2024, the US steel sector imported ~29 million tonne (MT) of semi-finished and finished steel, accounting for ~32% of its demand.
These imports were at highly competitive prices. For instance, domestic hot-rolled steel sheet prices were 40-50% higher than China's free on board (f.o.b.) offerings during the year.
The imports to the US were largely from regional trade partners, with Canada, Mexico and Brazil accounting for more than 50%.
Approximately 80% of the imports were from countries exempted through trade deals and temporary measures such as the 25% additional duty imposed in 2018.
The re-imposition of tariffs effective March 12 ended these exemptions.
The move is expected to trigger two major changes in the US steel sector: one, imports are expected to fall, providing an opportunity for US mills to increase their utilisation levels, and two, steel scrap consumption in the US should surge.
Dynamics of the Indian steel Industry
India is the second-largest steel producer in the world. In fiscal 2024, its crude steel output was ~144 million tonne. The industry contributes 1.7% to the country’s gross domestic product (GDP) and is a pillar of its economic and industrial framework.
Despite the challenges posed by global overcapacity and an uncertain economic environment, the industry has maintained robust growth driven by domestic demand stemming from the gargantuan infrastructure buildout of the past decade, and cruising automobile demand.
Over the past three years, steel demand in India has increased at a double-digit rate. The momentum is expected to continue, with fiscal 2025 demand growth estimated at 11.0-11.5%.
However, fiscal 2026 could see a slackening to 9-10%. Given global demand is estimated to grow 0.5-1% in calendar 2025, India could verily be the driver of global steel consumption in the near-term.
In fiscal 2025, India’s steel imports are estimated to be 10.5-11.0 million tonne (MT) and exports at 6.0-6.5 MT.
China, because of its very competitive pricing and proclivity for dumping, has had an overhang on global steel trade dynamics for a long time. India’s exports have also been affected because of the ongoing global softness in demand.
Between April and February, India’s finished steel exports fell ~34% on-year. The EU was a big market with 35% share, specifically Italy, Belgium and Spain. These countries were followed by Nepal and the UAE with 11% and 9% shares, respectively.
On the other hand, total finished steel imports grew approximately 16% on year. Product-wise, hot-rolled coils and sheets accounted for a higher share in the import basket.
Imports from South Korea were the highest with 29.5% share, followed by China and Japan with 27% and 21%, respectively.
Tariff impact on Indian steel
The direct impact of the tariff on India’s steel exports is seen minimal. That’s because the US accounts for only 3.3% of India’s total steel exports by volume.
However, the US is the largest source of steel scrap imports by India, meeting 15% (three-year average) of the requirement. As ~70% of the steel production in the US is via recycling of steel scrap, an increase in mill utilisation levels there will reduce scrap availability for exports.
This, in turn, may lead to a decline in scrap imports to India. Notably, imports account for 25-30% of total scrap demand in India.
Moreover, a combination of global oversupply, subsequent protectionist measures by major steel-consuming economies and shifting steel trade dynamics owing to US tariff action would reduce export opportunities for Indian mills, while simultaneously exposing them to competitive imports.
Safeguarding domestic steel
To protect Indian steelmakers from dumping, the Directorate General of Trade Remedies (DGTR) has recommended imposition of provisional safeguard duty on non-alloy and alloy steel flat products. A 12% ad valorem duty for 200 days has been proposed on imports of select steel products.
The move will provide much-needed relief to the domestic steel industry as it is likely to lead to a decline in net imports, thereby boosting domestic steel prices and mill utilisation.
In fiscal 2025, higher net imports had lowered domestic steel production, despite a double-digit growth in demand. Until February 2025, finished steel production increased only 5.0% on year, while domestic demand rose 11.3% year on year.
The domestic safeguard duty augurs well for large mills that are about to commission, or have recently commissioned, flat steel capacities.
With accrual reducing amid market challenges, many large mills were revisiting their capacity expansion plans. But expectations of better realisation after the imposition of safeguard duty would make them more confident.
And here is a sting in the tale, a Catch-22, as it were: while the safeguard duty will reduce the imports of finished steel, it could crank up domestic steel prices. If the price gap narrows or is negated, expect imports to surge. It will be back to square one, then.
