India’s steel industry, often shrouded in optimism and ambition, is increasingly defined by one key number: 300 million metric tons. This figure, set forth in the government’s National Steel Policy of 2017, serves as the North Star for the country’s steel ambitions. According to the NSP, India aims to achieve a crude steel production capacity of 300 million metric tons by 2030-31. The policy projected that steel demand and production would reach 255 million metric tons, with finished steel consumption expected to hit 230 million metric tons by the same year.
The Road to Growth: An Ambitious Vision
For context, India’s steel production in 2016-17 was far more modest, with crude steel production at 97.94 million metric tons and finished steel at 101.80 million metric tons. However, the country’s potential for growth was clear. With per capita steel consumption at a fraction of global averages, the opportunity for expansion seemed vast. Steelmakers, driven by this vision and the prospects of a growing economy, started developing ambitious expansion plans.
Investments flooded into the sector as the government pledged to support the steel industry’s transformation. The NSP laid the foundation for a massive scaling of capacity, and steelmakers’ optimism appeared to be well-founded. However, things took an unexpected turn in 2019, when a post-COVID surge in steel demand from China sparked a dramatic spike in Indian steel prices.
The Post-COVID Boom: An Unforeseen Surge
This boom saw the EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) of steelmakers soar to INR 25,000-35,000 per metric ton. For Indian steelmakers, the financial windfall was a call to action: expand aggressively. Many steel companies, convinced that the NSP’s projections would soon become reality, embarked on a spree of capacity expansion, betting heavily on the continuation of this boom.
The rush to increase production, however, was not without its flaws. In their zeal to grow, many companies ignored emerging trends in the global steel industry, especially the growing emphasis on sustainability and low-carbon steelmaking practices. Despite the ambitious expansion plans, there was little consideration for the industry’s environmental footprint.
Steel production in India has traditionally relied on energy-intensive methods like blast furnaces and basic oxygen furnaces, which are heavy consumers of coal and produce significant carbon emissions. These methods, while effective at scale, run counter to global trends toward decarbonization, particularly following the Paris Climate Agreement. The steel sector, a major emitter of greenhouse gases, is increasingly under pressure to adopt more sustainable practices.
The Growth of Capacity: 60% of the NSP Goal Achieved
By April 2024, India’s crude steel production capacity had reached 179.5 million metric tons, representing approximately 60% of the target set in the NSP. At the same time, crude steel production stood at 144.3 million metric tons, while finished steel production and consumption were at 136.3 million metric tons. On the surface, these numbers seem promising, but they mask a deeper issue: overcapacity.
The rapid increase in capacity, fueled by optimistic projections and the belief that demand would keep pace, has left the Indian steel industry with an oversupply of steel. This overcapacity, coupled with stagnant demand growth, has begun to disrupt the sector. Many steelmakers are now struggling to manage their capacity, with production far outstripping actual consumption, particularly in the flat steel sector.
The Overcapacity Crisis: A Looming Challenge
In brief, the overhang of capacity has become an acute problem for the Indian steel industry. With domestic consumption not growing at the anticipated pace, Indian steelmakers have turned to export markets in search of buyers. However, they face fierce competition from China, whose steel production capacity far exceeds India’s. China’s overcapacity in steel production has led to a global glut of steel, making it difficult for Indian mills to find overseas markets.
In 2024, China exported an astounding 110 million metric tons of steel in just the first 11 months of the year, contributing to the ongoing supply glut. This excess steel is not only depressing global prices but also making it harder for India to maintain its export volumes. The situation has been further complicated by futile trade barriers, such as import tariffs and quality control orders, imposed by the Indian government to protect the domestic market from foreign steel.
Domestic Demand Struggles: A Slowdown Across Key Sectors
At the same time, the domestic consumption outlook is far from optimistic. India’s steel consumption, which was expected to grow exponentially, has instead stagnated. The erosion of savings among the common people, exacerbated by the post-COVID economic downturn, has led to reduced demand for steel-intensive products like automobiles, infrastructure, and housing. The automotive sector, a key consumer of steel, has seen a significant decline in sales, particularly in the two-wheeler segment.
In 2017-18, India sold 21 million two-wheelers, but by 2024, sales had dropped to around 15-16 million units per year. This decline reflects a broader slowdown in consumption, driven by falling disposable incomes, the rising cost of living, and the erosion of household savings, particularly in the aftermath of the COVID-19 pandemic.
Although the government has taken steps to mitigate the impact of this slowdown, including introducing trade protection measures and focusing on infrastructure development, the root cause of the steel industry’s struggles lies in the mismatch between expansion plans and actual demand. Despite quarterly GDP growth numbers suggesting robust economic growth, the reality is that India’s economy is facing deeper structural challenges that are likely to impact steel consumption growth for years to come. The initial boost in demand post-pandemic has faded, and it is expected that India’s steel consumption growth will remain subdued in the near future.
Revised Projections: A Shortfall in the Original NSP Goals
Looking forward, media reports estimate that India’s crude steel capacity could reach 240-255 million metric tons by 2030, still short of the original 300 million metric tons target. While this is a significant achievement, the potential for a further surplus, especially in flat steel products, looms large. The industry is facing a difficult balancing act: it must continue expanding to meet long-term demand projections while managing the risk of overcapacity, which could further depress prices and strain profitability.
Moreover, the growing emphasis on sustainability and the need to reduce carbon emissions could force Indian steelmakers to rethink their expansion strategies, focusing on cleaner technologies and more value-added steel products. As a result, India’s steel industry stands at a crossroads, fraught with challenges, ranging from overcapacity and global competition to the urgent need for sustainable practices.
Sustainability and the Future: Rethinking Expansion and Embracing Cleaner Technologies
The growing global focus on sustainability means that Indian steelmakers must invest in low-carbon steel technologies to remain competitive in the coming decades. This is particularly important as steelmaking is one of the most carbon-intensive industries globally, with significant environmental impact. Transitioning to cleaner technologies such as electric arc furnaces and hydrogen-based steelmaking will be key to ensuring that India’s steel industry not only meets the demand for steel but does so in an environmentally responsible manner.
Steelmakers must also consider shifting their focus from increasing production volume to producing higher-value steel products. This pivot to more specialized products, including those used in renewable energy infrastructure and electric vehicles, could provide a new avenue for growth while reducing the risks associated with overcapacity.
A Strategic Realignment: Adapting to Global and Domestic Challenges
Despite the challenges, India’s steel sector has the potential to achieve sustainable growth. The National Steel Policy’s lofty targets have provided a framework for growth, but the reality of the sector’s current struggles suggests that achieving these targets will require a much more nuanced approach. Steelmakers must recalibrate their strategies, aligning capacity expansion with actual demand while also investing in cleaner, more efficient technologies to meet the growing global demand for low-carbon steel.
The coming years will test whether India can pivot toward a more sustainable and balanced growth trajectory. The overcapacity crisis, which currently weighs on the sector, must be managed through more prudent expansion strategies, a focus on export markets, and a commitment to environmental sustainability. India’s steel industry will need to adapt to these shifting dynamics, balancing the ambition of growth with the practicalities of demand, sustainability, and profitability.
