India's steel demand is expected to grow 5-7 per cent this fiscal, supported by continued investments in infrastructure and healthy demand from the automotive, engineering and construction sectors. According to Crisil Ratings, this growth will be driven by the government's continued infrastructure spending and robust domestic demand across key sectors. The agency projects that steel consumption will expand at 6-8 per cent annually over the longer term, aided by India's relatively low per capita steel consumption compared with the global average. This demand outlook is expected to keep investment activity buoyant in the steel sector.
Despite rising production costs, India's primary steel producers are expected to maintain stable operating profitability this financial year. Crisil Ratings expects operating profitability, measured by EBITDA per tonne, to remain at ₹10,500-11,000 per tonne this fiscal, broadly in line with the decadal average. However, production costs are rising by around ₹2,000 per tonne to ₹53,000-54,000 per tonne, driven primarily by higher coking coal prices, elevated logistics expenses and rising energy costs. Coking coal, which accounts for nearly 40 per cent of steel production costs, is expected to become 5-7 per cent more expensive amid potential supply disruptions in key exporting regions and sustained global demand.
The increase in costs will be largely offset by a projected 6-8 per cent increase in domestic steel prices, supported by stronger global steel prices, the government's 11.5 per cent safeguard duty on certain flat steel imports and robust domestic demand. As per Crisil Ratings, higher global steel prices, continued protection under the safeguard duty and healthy domestic demand growth are expected to support this price increase. This pricing power will help offset rising input costs and maintain profitability levels for steel manufacturers.
Primary steel producers are estimated to spend ₹75,000-80,000 crore on capacity expansion and related projects this fiscal, up from around ₹70,000 crore in the previous year. Investments will continue to focus on capacity additions, value-added products and backward integration, including captive mines and power plants. According to Crisil, nearly three-fourths of the planned capital expenditure is expected to be funded through internal accruals, with the remainder financed through debt. As a result, leverage is projected to improve modestly, with the net debt-to-EBITDA ratio declining to around 2.6 times by the end of this fiscal from 2.8 times a year earlier.
While the sector maintains stable profitability, Crisil cautioned that the evolving conflict in West Asia remains a key risk, as any escalation could further disrupt supply chains and push up input and logistics costs. According to Rohit Sadaka, Director-Large Corporates at Ind-Ra, several factors remain key near- to medium-term monitorables for the sector, including raw material price volatility, significant capacity expansion risks, lower import quota in the EU, and the impact of Carbon Border Adjustment Tax (CBAM) on EU exports. The agency emphasizes that while India's steel market position remains strong, these challenges could impact sector performance and require careful monitoring by industry participants.
