Steel Industry: Blunting Glint

In fiscal 2026, safeguard duty supported domestic steel output, but overall demand growth moderated during the year

by Sehul Bhatt, Director, Crisil Intelligence

A decline in imports of steel products and rising exports in fiscal 2026 following the implementation of safeguard duty paved the way for an increase in domestic supply. In fact, crude steel production increased ~11% in the first 10 months of the current fiscal.

However, after growing in double digits between fiscals 2022 and 2025, steel demand has started to moderate, with estimates pegging it at 6-7% in fiscal 2026, with demand slowdown in all major end-use segments, except for demand from transportation segment. In the next fiscal, too, it is expected to remain largely steady at 6-8%, driven by demand from construction and infrastructure sectors, with support from the transport segment.

Against this backdrop, crude steel production is expected to rise 6.5-8.5% in fiscal 2027. Addition of new and large blast furnaces by integrated mills is expected to help in meeting India’s steel demand.

Building and Construction: The building and construction segment is set to remain the largest consumer of steel, accounting for 35-40% of the total demand. The segment is expected to grow 6-8% in fiscal 2027 on account of a modest recovery in real estate supply, particularly in the top 10 cities of India, wherein new launches and under-construction projects are gaining traction after a slowdown in fiscals 2025 and 2026. The deployment of efficient and cost-effective construction methods such as prefabricated steel buildings in commercial spaces, has led to a gradual rise in steel consumption over the years in the urban space. Government support, particularly through initiatives such as the Pradhan Mantri Awas Yojana, is expected to support growth in the sector.

Infrastructure: The infrastructure segment accounts for 30-32% of the total steel demand. The Union Budget for fiscal 2027 has proposed to increase the capital expenditure (capex) for infrastructure heavy ministries by 17.7% from fiscal 2026 revised estimates, to ~Rs 11.9 lakh crore. The government is focused on developing transportation infrastructure, including roads, railways, waterways and aviation. By improving logistics efficiency and reducing costs, these investments are expected to drive demand for steel products in various infrastructure projects.

Transportation: The demand for steel from the transportation segment for fiscal 2026 is expected to record a cumulative growth of 8.5-9.5%. On the back of this estimated high base, demand is likely to moderate to 4-6% next fiscal. The segment is likely to benefit from the positive impact of the revisions to the goods and services tax (GST) rates, effective from the latter half of September in fiscal 2026, which boosted sales of passenger vehicles, two wheelers and commercial vehicles. This trend is expected to continue in fiscal 2027, with the GST rate cuts supporting automobile sales. Moreover, the likely implementation of the 8th Pay Commission could boost disposable income, further supporting automobile sales. The increased infrastructure capex announced in the budget is also expected to drive demand for commercial vehicles, providing an additional boost to the transport segment.

Engineering and Packaging: Demand from the engineering and packaging, and capital goods segments is expected to increase 5-7% in fiscal 2027. While the domestic demand outlook appears supportive, tariffs are likely to impact demand for exports, particularly to the United States (US), which accounts for 20-25% of India’s overall exports in value terms. Between April and December 2025, exports of capital goods, under HS codes 84 and 85, have risen about 14%, with the US accounting for ~21% of the total export value.

Impact of Safeguard Duty: The implementation of a temporary safeguard duty of 12% on non-alloy and alloy flat steel products for 200 days starting April 21, 2025, led to import volumes declining ~37% between April 2025 and December 2025. Although the imports meet 4-6% of the overall demand, they can impact domestic production and steel prices. For instance, fiscals 2024 and 2025 witnessed significant volumes of flat steel products coming into India, leading to decline in production growth for domestic steel mills. According to the final recommendation by the Directorate General of Trade Remedies, the central government imposed a three-tier safeguard duty for three years to curb the cheaper non-alloy and alloy flat steel imports. The duty levied will be at 12% until April 20, 2026, 11.5% from April 21, 2026 to April 20, 2027 and 11% from April 21, 2027 to April 20, 2028. However, certain exceptions apply, including exemptions for imports above specified Cost, Insurance, and Freight (CIF) price thresholds, imports from specific developing countries (except China, Vietnam and Nepal for certain products) and specialty steel products. This is likely to keep import volumes soft over the next few fiscals.

Exports: Exports in fiscal 2027 are expected to decline due to uncertainties in the global market and rising trade restrictions. The European Union (EU)’s Carbon Border Adjustment Mechanism (CBAM) has entered definitive compliance phase from 2026, with a gradual phasing-out of free allowances between 2026 and 2034. Under CBAM, importers must declare embedded emissions and purchase certificates at a price based on EU’s Emissions Trading System (ETS) allowance auctions (euro per tonne CO2). Despite this, the near-term impact on Indian exports is expected to be moderate because of the price gap between Indian HRC FOB prices and EU domestic prices.

The implementation of the proportionate reduction in India’s export quota to the EU from the second half of calendar year 2026 is likely to have a significant impact on exports. The draft legislation on volume-based quota is likely to get implemented in spring, post approval from the European Council. However, since most of the steel India produces is consumed domestically, the proposed reduction in tariff-free export quota is expected to have a minimal impact on the domestic production.

Conclusion
India’s crude steel capacity stood at 200.3 million tonne (MT) by the end of fiscal 2025, with significant expansion underway to achieve the National Steel Policy’s fiscal 2031 target of 300 MT. Notably, India has added ~58 MT of crude steel capacity between fiscals 2020 and 2025 and is expected to add 72-78 MT up to fiscal 2030, to meet growing domestic steel demand. While the safeguard duty has aided domestic steel production, it has also led to volatility in steel prices. With the imposition of the three-year safeguard duty towards the end of December 2025, steel prices have increased significantly for the fourth quarter of this fiscal. Higher exports and higher raw material prices (especially coking coal), along with lower inventory, have contributed to the recent price increases. However, since prices were on a declining trend for most of fiscal 2026, average flat steel prices are expected to be 0-2% higher than fiscal 2025 and remain in a similar range in fiscal 2027.

On the other hand, long steel prices are expected to decline 3-5% in fiscal 2027 amid increasing competition in the domestic market. Further, raw material prices, including coking coal and iron ore, are expected to remain supportive in fiscal 2027.