Steel: Navigating Global Uncertainty – Risks, Resilience and the Outlook

by Sumit Jhunjhunwala, Vice President & Sector Head, Corporate Sector Ratings, ICRA

The global steel industry is navigating subdued demand, rising trade protection and accelerating decarbonisation, even as China’s exports intensify competitive pressures. Against this uncertain backdrop, India’s resilient domestic demand offers growth opportunities, alongside emerging challenges

The global steel industry remains one of the most important pillars of industrial and economic development, given steel’s extensive use across construction, infrastructure, transport, capital goods, energy systems, manufacturing and consumer durables. However, the global steel industry is undergoing a structural transition, marked by a shift from the China-led growth model that defined the last two decades to a period of relatively subdued demand growth, with increasing regional divergence and greater dependence on emerging economies such as India.

Global steel demand declined sharply by around 3.1% in CY2022 and remained weak through CY2023 (-0.9%), CY2024 ( 1.0%) and CY2025 (-1.8%), reflecting a prolonged slowdown in construction and manufacturing activity in China. Nevertheless, as per the World Steel Association (WSA) forecast, the slowdown in global steel demand growth is expected to bottom out in CY2026, with a marginal growth of around 0.3% followed by a moderate recovery of around 2.2% in CY2027. However, the recovery is likely to remain uneven across regions. While steel demand in China is expected to remain subdued, demand in the developed markets is projected to improve gradually in CY2026 and CY2027. Besides the regional disparity in demand growth, the global steel industry continues to face challenges of steel price volatility, protectionist trade measures and increasing carbon-related compliance requirements.

The prolonged period of weak demand in China has resulted in a significant increase in Chinese steel export over the last 2-3 calendar years, with exports rising to around 119 million tonnes (mt) in CY2025. This further intensified the competitive pressure in the international markets and prompted several countries to strengthen their trade protection measures. At the same time, decarbonisation is becoming a key structural driver in shaping the future of the global steel industry. The increasing focus on achieving net-zero emissions by 2070, along with the implementation of Cabon Boder Adjustment Mechanism (CBAM), is expected to have a growing impact on steel production economics and international trade flows. Consequently, investments in low-carbon steel technologies would become increasingly important in the coming decades to maintain long-term competitiveness.

Indian steel demand, on the other hand, has remained resilient, supported by the infrastructure, construction, railways and manufacturing sectors. Domestic steel demand growth remained healthy at 11-14% during FY2022 to FY2025, aided by significant increase in Government capital expenditure (capex) towards the steel-intensive sectors. Although the pace of growth moderated in FY2026 following a slowdown in Government capex during the election period, domestic steel demand growth remained comfortable at around 8%. Going forward, the demand growth is expected to remain healthy at 8-9% in FY2027, supported by higher budgetary allocations and continued infrastructure spending. Despite the favourable domestic demand environment, the global market dynamics remain a key credit consideration for the Indian steel industry, given the commodity nature of steel and the linkage of domestic steel prices to import parity. Any adverse movement in international steel prices, raw material costs or trade flows could impact the pricing power, impacting the earnings and credit profile of the industry players.

Domestic hot-rolled coil (HRC) prices have witnessed significant volatility in the past, reflecting changes in global steel prices and market sentiments. In FY2026, while steel prices remained relatively firm at the beginning of the year, they moderated significantly in Q2 and Q3, before recovering from December 2025, supported by the re-imposition of safeguard duty on select steel products for three years. The safeguard duty provides a cushion against cheaper Chinese steel imports. In July 2026, while domestic HRC prices traded at a discount of $28-30/tonne to Chinese prices, the effective protection available through the safeguard duty was significantly higher at $50-55/tonne. Thus, in the absence of safeguard duty, the landed cost of Chinese steel would have been significantly lower, putting pressure on domestic steel realisations.

Apart from steel, prices of coking coal, which accounts for around 40% of the raw material cost for domestic primary producers, remain volatile. Given the import dependence, fluctuation in international coking coal prices could materially impact the steel spreads.

Trade flows are also expected to remain an important determinant of the sector’s competitiveness. During April–July FY2027, finished steel imports increased by around 37% year-on-year to 2.77 mt, while exports increased 35.0% to 2.29 mt, making India a net importer for the period. While the imposition of safeguard duty resulted in significant decline in steel import in FY2026, the recent increase in steel imports highlights the continued pricing pressure from the overseas markets. Domestic producers would, therefore, need to maintain a strong focus on cost efficiency to remain competitive. Moreover, the export opportunities will continue to be challenging for Indian steelmakers due to the competition from China and the increasing trade protection measures across the major markets, including those implemented by the European Union.

Nevertheless, the domestic steel demand remains resilient and diversified across infrastructure, construction, automobiles, engineering, capital goods, consumer durables and renewable energy-related applications. The April–July FY2027 data reinforces the strength of the domestic market, with finished steel consumption increasing 7.8% year-on-year to 55.9 mt. The sector’s balance sheet position has also strengthened compared with the previous downturns. The steel industry’s bank debt stood at $176 per tonne of installed capacity in March 2026, significantly lower than the earlier peak of $450 per tonne, providing a higher ability to withstand cyclical downturns. The industry’s operating margins also improved to 14.8% in FY2026 and are expected to remain broadly stable in the current fiscal, supporting internal cash generation and debt servicing capacity. Continued policy support, including timely trade interventions such as safeguard duty measures as well as the Production Linked Incentive (PLI) scheme for specialty steel, will continue to support the sector’s medium-term competitiveness.

ICRA’s outlook on the steel sector is Stable. In the near term, healthy domestic demand, safeguard measures and improving capacity utilisation are expected to support the volumes, realisations and cash flows. ICRA expects industry OPBDITA/tonne to be around $115/tonne in FY2027, compared to ~$106/tonne achieved in FY2026. However, over the medium term, the credit profile will remain sensitive to global steel prices, coking coal costs and import competition. Sustaining cost competitiveness, better raw material security and focus on value-added products would be crucial to withstand the global competitive pressures.