India steel production cuts could soon become inevitable as small and medium-sized steel mills warn that disruptions in natural gas supplies linked to the war in the Middle East are already affecting operations.
Following supply interruptions along key LNG trade routes, the Indian government has introduced new regulations prioritizing gas allocation for essential sectors. However, the steel industry has not been included among these priority sectors, raising serious concerns among producers.
Steel mills warn of 50 percent production cuts
Industry participants say that steel production in the small and medium mill segment could decline sharply in the coming days if gas supply conditions do not improve.
Several producers have already warned that output reductions of up to 50 percent may occur within days.
“We are looking at a 50 percent production cut as of now and a complete halt ahead if supplies don't improve within a week,” said Yogesh Kanakiya, director at Triveni Iron and Steel Industries.
Small and medium steel mills are particularly vulnerable to energy disruptions because they typically operate on tight operating margins and limited inventory buffers.
Anshum Goyal, managing director at Friends Steel Group in Gujarat, highlighted the financial pressure facing producers:
“We work on wafer-thin margins and our margins have shrunk. We are concerned over gas supplies and it is affecting our decision-making in terms of prices.”
Government introduces natural gas regulation order
In response to supply disruptions, the Indian government introduced new gas supply regulations to manage the country’s limited energy resources.
Under the Natural Gas (Supply Regulation) Order, 2026, the Indian authorities will regulate distribution across sectors to ensure that essential services continue to receive adequate energy supply.
Priority sectors for gas allocation include domestic piped natural gas (PNG), compressed natural gas (CNG) used in transport, liquefied petroleum gas (LPG) production, and essential pipeline operations. According to the regulation, these sectors may receive up to 100 percent of their average gas consumption over the past six months, subject to operational availability. Notably, the steel industry has not been included in the priority allocation list.
LNG supply disruptions linked to Strait of Hormuz
The regulation follows disruptions in LNG shipments caused by the war in the Middle East, which has affected maritime energy trade routes.
According to the Indian Ministry of Petroleum and Natural Gas, liquefied natural gas shipments passing through the Strait of Hormuz have been disrupted and some suppliers have invoked force majeure clauses, indicating supply constraints beyond their control.
Key energy dependency
A major concern for India’s energy security is its reliance on Middle Eastern LNG, with the share of LNG sourced through the Middle East standing at approximately 40 percent.
These disruptions have triggered concerns about industrial fuel shortages, particularly for sectors such as steel that rely heavily on natural gas in certain production processes.
Potential implications for India’s steel sector
If gas supply shortages persist, the consequences for India’s steel industry could include:
- Significant production cuts among smaller mills
- Higher steel production costs
- Possible supply tightening in domestic steel markets
- Greater price volatility
Small and medium steel producers are typically more exposed to energy disruptions compared with large integrated steelmakers that rely more heavily on coal-based blast furnace operations.