Steel demand outruns capacity, prices rebound

New Delhi: Steel demand continues to outpace domestic production capacity, leading to a rebound in prices, according to a research report by Kotak Institutional Equities. The report predicts that the domestic demand for steel will remain above 90% of capacity over the medium term, driven by robust demand and a 7% compound annual growth rate (CAGR) expected through FY2026-29.

Despite four years of double-digit growth in FY2026, industrial and infrastructure activity has kept domestic demand healthy, with a 7.8% year-over-year (yoy) growth in YTDFY27. Meanwhile, exports have increased by 35% yoy to 2.3 million tons, but were outpaced by imports of 2.8 million tons, rising by 36.7% yoy. Ongoing trade remedies could help keep imports in check.

Long steel prices have shown a visible rebound in recent weeks, with a 12% increase over the past month, reversing the sharp correction seen in June and July 2026. Domestic market tightness and favorable seasonal conditions, following the receding monsoon, are expected to further elevate prices. Spot primary and secondary rebar prices have risen by around Rs 5,600 per ton, reaching Rs 53,900 per ton for spot primary rebar and Rs 47,900 per ton for spot secondary rebar.

Although these levels are still about Rs 6,000 per ton below the April 2026 highs, improving seasonal conditions provide additional price support.

On the product pricing front, flat steel segment prices, such as domestic hot rolled coil (HRC), trade at Rs 58,800 per ton, indicating a 3% discount to import parity. Weak Chinese steel spreads, caused by cost inflation, may lead to higher regional steel prices in the coming period. Input costs display divergent trends across raw material categories, with coking coal prices rising by 5% over first-quarter levels due to supply constraints, including mine accidents in China and lower Russian production due to diesel shortages.

Domestic iron ore fines prices, however, have fallen by approximately 7% from June exit levels, aligning with the broader softness in seaborne iron ore markets. The report anticipates that steel margins will soften sequentially in 2QFY27E; however, recent price recovery and operating leverage should help margins recover in 2HFY27E, with lower iron ore prices providing relief to non-integrated producers.