India's steel demand is projected to grow by 8% or 11-12 million tonnes per annum (Mtpa) from a year prior in FY 2026-27, according to a report by ratings agency ICRA.

However, domestic steel producers face challenges due to softer steel prices and increased supply, which could pressure margins. The report also noted that the operating environment for steel producers will remain tough, with stable but persistent input costs and a weak global market.

ICRA also warned that the planned capacity additions of 80-85 Mtpa, requiring investments of $45-50 billion over FY 26-31, may face delays or a slowdown. The agency forecasted that domestic steel industry operating margins will remain flat at 12.5% for FY 2026-27, while leverage is expected to rise slightly to 3.4 times from the previous year's 3.1 times.

Over the past three to four quarters, the domestic steel sector saw a record 15 Mtpa of capacity added, with another 5 Mtpa expected by the end of FY 2026-27. However, persistent supply-side pressures pushed domestic hot-rolled coil prices below import parity. For FY 2026-27, domestic hot-rolled coil prices are expected to average Rs 50,500/t ($607.23/t).

Despite a spike in hot-rolled coil prices to Rs 52,850/t in April 2025, prices dropped to Rs 46,000/t by November 2025 following the implementation of a 12% Safeguard Duty (SGD).

Additionally, China's record steel exports and weak global demand are limiting domestic producers' ability to raise prices. The report also highlighted rising trade barriers in the US and EU, which may redirect surplus steel volumes to India, urging continued implementation of the Safeguard Duty to protect the domestic market.