Steel Demand to Grow 8% in FY26 Amid Price Pressures: ICRA

The domestic steel demand is estimated to grow by around 8 per cent in FY26, but softer steel prices will keep margins under pressure for producers, rating agency ICRA said on Wednesday.

In a report, Icra projected the industry's operating margin to remain flat at about 12.5 per cent in FY26, lower than earlier expectations of an improvement.

"While we project steel demand growth to remain healthy at 8 per cent for FY26, incremental supply has created a temporary surplus, resulting in continued pressure on steel prices," said Girishkumar Kadam, Senior Vice-President & Group Head, Corporate Sector Ratings, Icra.

Domestic hot-rolled coil (HRC) prices, which had spiked to Rs 52,850 per tonne in April 2025 following a safeguard duty, corrected to around Rs 46,000 per tonne in November and are currently trading below import parity, Icra noted.

Structural headwinds in China have led to its steel exports reaching an all-time high of 88 million tonnes in the first nine months of CY2025, weighing on global prices.

Chinese HRC export prices averaged about USD 465 per tonne in the first seven months of FY26, down from USD 496 per tonne a year earlier.

While India's finished steel imports have declined sharply by about 33 per cent year-on-year in the current fiscal, the rating agency emphasised that the continuation of the safeguard duty remains critical to prevent a surge in imports.

In its baseline scenario, it expects domestic HRC prices to average around Rs 50,500 per tonne in FY2026.

Operating profit per tonne of steel production is pegged at USD 108, marginally below the USD 110 per tonne registered in FY2025.

The sector outlook is maintained as 'Stable'.

The rating agency also highlighted risks to the large capacity expansion plans of the industry. Domestic steel mills are targeting an addition of 80-85 million tonne, involving investments of USD 45-50 billion over FY26-31.

However, unless earnings improve meaningfully, such large-scale investments could spike industry leverage levels over the medium term.

On green steel, Kadam said, "Green steel's share in India's overall demand is expected to rise from about 2 per cent (around 4 MT) in FY2030 to nearly 40 per cent (150 MT) by FY2050".

However, he noted that the economics remain challenging, with large-scale adoption constrained until green hydrogen prices fall closer to USD 1.5-1.6 per kg, which is unlikely in the near to medium term.