Indian Steel Sector Faces Production Cuts Amid Gas Crisis 2026

Introduction: A Sector Under Pressure

India's steel industry, the world's second-largest producer, is facing a significant operational crisis. A severe shortage of industrial gases, including liquefied petroleum gas (LPG), propane, and natural gas, has forced companies across the sector to curtail production. The crisis stems from disruptions in global shipping routes caused by the ongoing conflict in the Middle East, which has choked off vital energy supplies. In response, the Indian government has invoked emergency measures, prioritizing household gas consumption and further tightening availability for industrial users, leaving steel manufacturers in a precarious position.

The Genesis of the Shortage

The root of the problem lies in the disruption of maritime trade through the Strait of Hormuz, a critical chokepoint for energy shipments. India imports approximately 60% of its LPG, with a substantial portion sourced from the Middle East. The conflict has led to vessel diversions, longer transit times, and a sharp increase in freight and insurance costs. This has created a supply chain bottleneck, leading to a nationwide shortage. Compounding the issue, the government has directed oil refining and petrochemical companies to divert all C3 and C4 streams—propane, butane, and propylene—towards domestic LPG production, effectively cutting off a key feedstock for many industries, including steel.

Major Producers Scale Back Operations

Large steel conglomerates have been directly impacted. An internal note from JSW Group revealed that mounting gas shortages have disrupted operations, with one of its units, JSW Steel Coated Products, facing a potential shutdown. The company also received a force majeure notice from a key supplier, Petronet LNG, citing the crisis. JSW noted that the disruptions were affecting its operational stability and ability to meet sales obligations.

Similarly, Jindal Stainless, India's largest stainless steel producer, is operating its plants at a "rationalised capacity." Managing Director Abhyuday Jindal explained that the stainless steel industry's scrap-based production route is heavily dependent on industrial gases, unlike conventional steelmaking that uses internally generated coke oven gases. The company has flagged operational disruptions and the cascading effect this could have across the entire value chain.

ArcelorMittal Nippon Steel (AM/NS) India is also considered to be at high risk, as approximately 65% of its steelmaking capacity relies on a gas-based direct-reduced iron (DRI) process. Market analysts anticipate a potential 20% reduction in steel supply from AM/NS if the situation persists.

MSMEs Bear the Brunt of the Crisis

While large corporations are struggling, the impact on micro, small, and medium enterprises (MSMEs) is even more severe. The Indian Steel Association has warned of a "huge adverse impact" on these smaller players, which employ a large workforce. Reports from industrial hubs paint a grim picture. In Mandi Gobindgarh, Punjab, manufacturers are reportedly able to meet only 50% of customer demand. In Gujarat, smaller mills are fulfilling about 70% of their orders.

Even units that primarily use coal are not immune. They require LPG for essential processes like cutting, lancing, and maintenance. In West Bengal's foundry belt, some units have seen a 10% drop in the production of export castings, with fears that this could widen to 20% if the shortages continue.

Summary of the Gas Crisis Impact

Economic and Downstream Consequences

The crisis has triggered a cascade of economic effects. The rise in energy and logistics costs has already pushed finished steel prices up by Rs 2,000 to Rs 2,500 per tonne. This inflation in a core industrial commodity threatens to impact construction, automotive, and manufacturing sectors. Downstream industries, such as the galvanised steel sector which is a major consumer of propane, are also under pressure. Many smaller re-rollers are at risk of ceasing operations entirely.

The disruption has even reached the factory floor in unexpected ways. Major facilities like the Rourkela Steel Plant and Tata Steel have had to rationalize kitchen operations in worker canteens, simplifying menus to conserve scarce LPG supplies.

Market Analysis and Forward Outlook

The Indian steel sector is caught between rising input costs and the threat of weakening demand. While higher production expenses would typically translate to higher steel prices, there is a risk that other major steel-consuming industries, also affected by the gas shortage, may cut back on procurement. This creates an uncertain outlook for steel prices and profitability.

The industry is now looking to the government for clarity. Abhyuday Jindal of Jindal Stainless stressed the need for clear guidelines on the allocation percentage for industrial gases and an assurance of regular supplies to help companies plan and optimize their operations.

Conclusion

The gas supply crisis has exposed the vulnerability of India's steel industry to global geopolitical events and supply chain disruptions. From large integrated mills to small ancillary units, the entire sector is grappling with production cuts, rising costs, and operational uncertainty. The severity and duration of the impact will ultimately depend on how quickly the conflict in the Middle East is resolved and supply routes are stabilized. Until then, the industry must navigate this challenging period with careful resource management and hope for clear government policy on industrial energy allocation.