Subdued prices to continue weighing on steel profits, recovery in FY26 remains muted

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Major steel makers are set to enter 2026, facing a challenge as to how to safeguard margin levels from dropping further as subdued steel prices and uncertainty over coking coal costs loom over ambitious expansion plans.

In the last five years, operating profit has dropped more than 50 percent for top steelmakers with cash flow entering negative territory or sharply low from the 2022 cash piles, according to data from Ace Equities.

"Realisations of Indian steel players are expected to witness a downtrend in the third quarter on the back of falling steel prices. Average domestic HRC (Hot rolled coil) prices came in at Rs 47,000/tonne, down Rs 2,400/tonne compared to the second quarter," brokerage JM Financial wrote in a note.

Indian ferrous players are likely to witness an EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)/tonne contraction to the tune of Rs 2,000/tonne in the third quarter, given lower realisations and higher coking coal costs, the brokerage added.

Policy clarity, sustained infrastructure spending, and stabilising housing and auto demand are likely to support consumption, with overall steel demand projected to grow 7–9 percent.

However, margins may remain tight in the early part of the year due to elevated competition and volatile raw material costs, according to Vinaya Varma, managing director, Mjunction Services Ltd, a B2B  e-marketplace for steel.

Operating profits of India’s major steelmakers have declined sharply from FY22 highs, while debt levels have moved higher, underscoring the weakening earnings–leverage equation over the past three years.

At JSW Steel, operating profit fell from Rs 40,538 crore in FY22 to Rs 23,598 crore in FY25, a drop of about 41 percent, while net debt increased from Rs 52,592 crore to Rs 82,672 crore, pushing net debt-to-EBITDA up from 1.3x to 3.5x, according to Ace Equities data.

Similarly, Tata Steel’s operating profit more than halved from Rs 64,275 crore in FY22 to Rs 26,839 crore in FY25, down 58 percent, even as net debt rose from Rs 52,929.8 crore to Rs 77,317 crore, taking leverage from 0.8x to 2.9x EBITDA.

At SAIL, operating profit declined from Rs 22,200 crore in FY22 to Rs 11,521 crore in FY25, a fall of nearly 48 percent, while net debt more than doubled from Rs 16,499 crore to Rs 35,967 crore, with net debt-to-EBITDA rising from 0.7x to 3.1x.

Jindal Steel saw operating profit fall from Rs 15,685 crore in FY22 to Rs 9,880 crore in FY25, a decline of around 37 percent, while net debt increased from Rs 9,194 crore to Rs 13,662 crore, taking leverage up from 0.6x to 1.4x EBITDA.

All four companies generated strong surplus cash in FY22, but by FY25, free cash flow has turned weak or negative for JSW Steel and Jindal Steel, while Tata Steel and SAIL reported only marginal surpluses.

According to ICRA’s latest note on the steel sector, steel industry operating margins for FY2026 are expected to remain largely flat at ~12.5 percent, lower than the earlier expectations of an improvement of 100-120 bps, reflecting continued weakness in steel prices.

With muted earnings momentum, the industry leverage (TD/OPBDITA) is projected at 3.4 times in FY2026 as against our August 2025 estimate of 3.1 times and 3.5 times reported in FY2025.

Meanwhile, capacity additions by leading Indian steelmakers are set to keep supply pressure elevated, with installed production capacity rising from about 90.4 million tonnes in FY24 to nearly 109 million tonnes by FY26, according to ICRA ratings.

While export demand remains lacklustre, FY2026 net finished imports (indicating finished steel imports less exports) are poised to decline on the back of reduced inbound shipments.

However, rising trade barriers in key consumption markets, such as the US and EU, could divert surplus global steel volumes towards high-growth markets like India. In this context, the continuation of the Safeguard Duty remains critical to prevent a surge in imports and protect domestic prices from external shocks, ICRA said.