Steel stocks are now hinged on safeguard duties and price realisations — not volumes — to deliver EBITDA, deleveraging, and capex viability.

Big Picture: 2026 Setup

Indian steel stocks are late-cycle winners:

• +20–45% returns in 1 year vs Nifty’s ~9%

• Driven by strong domestic demand + benign raw material prices

• Balance sheets are far healthier than past upcycles

But as the cycle matures, sustainability of gains now hinges on:

Steel prices, tariffs, and execution of capacity expansion

This is no longer a volume story.

The Single Most Important Variable

Steel Price Realisations (and Tariffs)

Everything flows from this:

• EBITDA margins

• Deleveraging pace

• Capex viability

• Valuation sustainability

If prices wobble, the entire thesis weakens.

Demand Outlook: Consumption Takes Over

Consumption Side (Supportive)

• ~125 bps rate cuts over the last year

• Personal tax relief + selective GST cuts

• Auto and real estate demand improving

Net result:
Steel demand growth of 8–9% looks achievable — steady, not explosive.

Capex Side (Flattening)

• FY26 government capex growth is steady, not accelerating

• Fiscal constraints limit sharp infra expansion

Bottom line:
Consumption-led demand offsets slower capex.

The Biggest Overhang: Chinese Exports

• China exports ~120 mtpa, up from ~52 mtpa in 2020

• Weak Chinese real estate demand is pushing surplus steel into global markets

• Historically, rising Chinese exports directly pressure Indian realisations

China can suppress prices in any market without trade barriers.

Unless China’s domestic demand recovers, export pressure persists.

Tariffs: Necessary, Not a Complete Shield

• India imposed a 12% safeguard duty on steel imports

  • Tapers to 11.5% in FY27 and 11% in FY28

• US tariffs are ~50%; EU uses quotas + penalty tariffs

Risk:
India becomes a lower-tariff spillover market for excess Chinese steel.

Tariffs have arrested price collapse, but mills still guide for 1–2% realisation softness in Q3 FY26.

Margins: Cost Tailwinds Are Fading

• EBITDA margins improved to ~15.7% due to falling coal and iron ore prices

• That tailwind is largely exhausted

Going forward:

Margin expansion depends entirely on steel prices, not costs

Capacity Expansion & Balance Sheets

All four majors are expanding:

• Tata Steel: 30 → 40 mtpa by 2030

• JSW Steel: 34.2 → 42 mtpa by FY27

• Jindal Steel & SAIL: 30–50% capacity growth planned

Leverage is better than past cycles — but rising again due to capex.

Pricing discipline is critical.

Valuations Leave Little Room for Error

• Stocks trade at ~33% premium to 5-year average EV/EBITDA

• With limited cost relief left, earnings momentum hinges on price realisations holding up

Company Snapshots

Tata Steel

• EV/EBITDA: ~7.8x (cheapest)

• Benefits from India tariffs and EU CBAM (Netherlands ops)

• Europe contributes 10–15% of revenue

• Expansion paced with price signals

Best risk-reward in a cautious steel setup

JSW Steel (High Beta)

• Highest leverage in the pack

• Deleveraging expected via JFE JV + BPSL resolution

• Works only if realisations rise

Jindal Steel & Power

• Strong execution track record

• ~60% capacity growth by FY26

• Less pricing-dependent initially due to efficiency gains

SAIL

• Government-owned, large domestic base

• Execution and debt reduction need monitoring

• Least visible growth path

Protectionist Shield: Safeguard Duty (Dec 2025)

• 12% duty on flat steel imports (China, Vietnam, Nepal)

• Landed HRC cost rises from ~₹48,000 to ~₹55,500/tonne

• Gives domestic mills pricing elbow room

This duty is currently holding the sector up.

Europe: The Double Hit (CBAM + GSP)

CBAM (Carbon Tax)

• Effective Jan 1, 2026

• Carbon charge of ~€270/tonne using default values

• Hits blast-furnace based Indian steel hardest

GSP Withdrawal

• Loss of preferential tariff status

• Adds ~3–4% cost before carbon tax

Net impact: Indian exports to Europe face severe margin pressure.

Stock Watchlist: Capacity vs Leverage

EBITDA Sensitivity to Steel Prices (Core Insight)

Steel costs are semi-fixed.
Prices move fast.

Every ₹1,000/tonne move in steel prices ≈ ₹1,000/tonne change in EBITDA.

Base Assumptions

• Steel realisation: ₹58,000/tonne

• Cash cost: ₹42,000/tonne

• EBITDA/tonne: ₹16,000

• Reported margin: ~15–16%

EBITDA Sensitivity (Per Tonne)

A 3% price move causes double-digit EBITDA swings.

Company-Level Impact (±3% Price Move)

This flows almost directly to PAT.

China Dumping Stress Test (–10% Prices)

Scenario

• China exports stay at 120–130 mtpa

• Safeguard duty proves insufficient

• India steel prices fall ~10%

EBITDA Impact

• EBITDA per tonne falls from ₹16,000 → ~₹9,500

• EBITDA declines ~40%

Balance Sheet Stress

JSW enters danger territory first.

Survivability Ranking (Dumping Scenario)

1. SAIL – Govt backing, low leverage

2. Jindal Steel – Flexible capex, strong balance sheet

3. Tata Steel – Scale helps, Europe hurts

4. JSW Steel – Highest leverage, highest downside

Investor Playbook

If dumping signs emerge:

• Avoid leveraged expansions

• Prefer SAIL / Jindal over JSW

• Wait for EBITDA capitulation, not price dips

Early Warning Indicators

• China exports >10 mt/month

• India imports rising despite duties

• HRC prices falling for 2–3 consecutive months

• Management commentary shifts to “competitive pressure”

Final Takeaway

India’s steel sector in 2026 is:

• Late-cycle

• Tariff-dependent

• Extremely price-sensitive

If prices hold: stocks consolidate
If prices rise: upcycle extends
If prices fall: valuations won’t protect you

This is no longer a “buy the sector” trade — it’s a selective, timing-sensitive one.