Domestic steel companies posted a strong start toFY2026, post the SGD imposition, aided by a steel price rally and softer input costs, with Q1 FY2026 margins reflecting improved performance. However, a sharp correction in steel prices in Q2 FY2026 is expected to compress steel spreads by $25/tonne(~4-5%). Despite recent steel price recovery, upside is likely to remain capped as domestic prices continues to trade at a premium to Japanese and Korean export offers.
- Steel industry operating margins in FY2026 are estimated to improve sequentially by 100-120 bps, lower than the earlier expectation of 300-350 bps, owing to muted realisation. With weaker-than-anticipated margins, industry leverage (TD/OPBDITA) is expected to remain around 3.1 times in FY2026 compared to 2.5 times estimated in our earlier forecasts in May 2025 and 3.5 times reported in FY2025.
- The escalation of the trade war between USA and China since February 2025 exerted downward pressure on Chinese steel prices, with the HRC export offers softening to around $445/tonne in June 2025 from $475/tonne at end-January 2025. However, there was a sharp rebound in prices thereafter, supported by rising raw material costs. Chinese prices also recovered to almost $495/tonne in the second week of August 2025.
Source: Bigmint, ICRA Research
