India Gas Supply Crunch Raises Steel Supply Risk as Mills Cut Output

India Steel

India gas supply crunch is beginning to disrupt the country’s steel sector, with secondary producers and gas-dependent mills facing rising operational pressure. The crisis has intensified because India sources 67% of its LNG imports from the Middle East, where the US-Israel war with Iran has created major supply disruption.

India gas supply crunch is hitting smaller induction furnace-based steelmakers first. Several producers are rationing available gas, reducing output, and struggling to meet customer requirements. The government has also prioritized domestic natural gas supply for households, which has further tightened availability for industrial users.

India gas supply crunch now threatens more than steelmaking alone. It is affecting cutting operations, maintenance work, downstream galvanizing, packaging materials, plastics, propane, ammonia, limestone logistics, and imported thermal coal costs. As a result, the steel value chain faces a broader cost and supply shock.

Gas-Based Steelmakers and Secondary Mills Face Uneven Pressure

Gas exposure varies sharply across India’s steel industry. Smaller induction furnace-based mills in Mandi Gobindgarh, Punjab, have already reduced production where they rely on piped natural gas. Some manufacturers in the region can meet only about half of customer requirements, while smaller mills in Gujarat are fulfilling about 70% of demand.

Secondary steel producers that use scrap and direct-reduced iron are under particular pressure. These mills often operate with thinner margins and less procurement flexibility than large integrated producers. Rising gas costs, limited availability, and weaker scrap economics can quickly force production cuts.

The pressure is not uniform across regions. Producers in Jalna, Maharashtra, said they had not yet cut production because of gas shortages. However, imported thermal coal prices have affected most secondary mills, and imported scrap has become less viable. This means even coal-based mills are not fully protected from the wider input-cost shock.

Gas-based DRI operations face one of the clearest risks. ArcelorMittal Nippon Steel India is viewed as vulnerable because about 65% of its 9mn t/yr steelmaking capacity uses the gas-based DRI-electric arc furnace route. Market participants expect a potential near-term supply reduction if gas disruption worsens.

Downstream Steel and HRC Prices Face New Volatility

The downstream steel sector is also exposed to the gas shortage. Galvanized steel producers rely heavily on propane, and some integrated mills have already reduced galvanized output marginally while conserving existing gas supplies. Smaller re-rollers are at greater risk of curtailing or stopping operations.

The disruption has also reached trade and service centers. Some plate suppliers are unable to fulfill pending orders because their cutting processes depend on gas. This shows how energy shortages can spread beyond melt shops and rolling mills into finishing, processing, and distribution.

Steel prices may remain firm if input costs stay elevated. Indian domestic hot-rolled coil prices have already risen sharply, with 2.5mm-4mm HRC assessed at Rs54,300/t ex-Mumbai on 6 March, up 17% from mid-December 2025. Higher gas, coal, propane, ammonia, and logistics costs could keep pressure on finished steel prices.

However, demand risk is also rising. Major steel-consuming industries may face the same gas constraints, which could reduce their production and lower steel procurement. This creates a difficult market balance: supply costs are rising, but demand traction remains uncertain as buyers wait for clearer conditions.

The Metalnomist Commentary

India’s steel sector is facing an energy-security stress test. The biggest risk is not only lower steel output, but a chain reaction across DRI, galvanizing, cutting, re-rolling, and downstream demand.