India's steel sector has started to feel the effect from gas supply shortages, with industry experts cautioning of bigger disruptions if the US-Israel war with Iran is prolonged.
Some steel producers, particularly smaller induction furnace (IF)-based manufacturers, were reducing output and rationing existing gas supplies, market participants told Argus.
With 67pc of India's LNG imports sourced from the Middle East, the ongoing crisis has resulted in major supply disruptions. The Indian government has prioritised domestic natural gas supply for the household sector, further tightening availability for industries, including steel.
Some secondary steel producers, which use scrap and direct-reduced iron (DRI) as feedstocks, were grappling with hurdles in their daily operations.
In Punjab state's Mandi Gobindgarh, manufacturers could meet 50pc of customer requirements while smaller mills in western India's Gujarat state could fulfil about 70pc of demand, a north India steel producer said.
A portion of IF-based mills in Mandi Gobindgarh that were using piped natural gas (PNG) had reduced output, the producer added. Others that were largely running on coal were also curtailing use of liquefied petroleum gas (LPG), required for cutting and maintenance purposes and for handling of misrolled or deformed steel products.
Secondary steel producers in Maharashtra state's Jalna market said there were no production cuts in the region yet because of gas shortages.
But an increase in imported thermal coal prices has affected most secondary mills, while imported scrap has become unviable.
Among major integrated producers, ArcelorMittal Nippon Steel (AM/NS) India was at a major risk because it used gas-based DRI at a large scale, market participants said. About 65pc of the company's steelmaking capacity of 9mn t/yr uses the gas-based DRI-electric arc furnace route. A trading firm said it was anticipating a 20pc reduction in steel supply from AM/NS in the near term.
A mill source said they had hedged their gas supply but there were risks of potentially bigger gas disruptions if the war persisted for a longer period. Costs of propane, ammonia and even packaging and plastics are on the rise, pushing up expenses for producers, the source noted. Another producer said they were not facing any major hurdles because of gas supply shortages as they were heavily reliant on coal-based production processes. But disruptions to the supply of limestone, which India sources from Ras Al Khaimah in the Middle East, have hit bigger steelmakers.
The gas supply shortages have ratcheted up concerns for the downstream steel sector, as the galvanised steel industry is a major propane consumer. Smaller re-rollers have been particularly hit, with several at risk of curtailing or ceasing operations, market sources said.
A major integrated mill with downstream production facilities said they had marginally reduced their galvanised output and were using their existing gas supplies carefully.
The ongoing crisis has also rippled through to some trade market participants. A Mumbai-based trading firm said it was unable to service many of its pending plate orders because it used a gas-based cutting process and was short on gas supplies.
Outlook for steel prices uncertain
Prices for finished steel, which have already surged over the past few months, could keep rising because of elevated input costs and gas supply shortages for mills. The Argus weekly Indian domestic hot-rolled coil (HRC) assessment for 2.5mm-4mm material was at 54,300 rupees/t ($587/t) ex-Mumbai, excluding goods and services tax, on 6 March, rising by 17pc from mid-December 2025.
But a key risk is that major steel-consuming industries could also face disruptions because of tighter gas supply, forcing them to cut back on their production and reduce steel procurement.
There is not as much demand traction as was expected from consumers under current market conditions, indicating they may be in a wait-and-see mode, a steel mill source said.
