A background note can be accessed here: OECD Warns Global Steel Overcapacity
The OECD projects that global steel overcapacity could reach 745 million tonnes by 2028, driven largely by continued capacity additions despite weakening demand growth. How should India reconcile its own steel expansion ambitions with an increasingly oversupplied global market?
Steel overcapacity is a concern for economies where excess production is structural and the industry is inherently export-dependent. India’s situation is fundamentally different. As the OECD report itself notes, India’s steel production expansion is largely aligned with domestic demand growth.
India’s crude steel capacity increased from 144 million tonnes in FY21 to 200 million tonnes in FY25, representing a CAGR of 8.6 percent. During the same period, apparent steel consumption rose from 95 million tonnes to 152 million tonnes, growing even faster than capacity and confirming that recent additions have been demand-driven. India remains the world’s fastest-growing steel market and is expected to retain that position for the next two decades.
With installed capacity now around 220 million tonnes, the industry remains broadly on track towards the National Steel Policy 2017 target of 300 million tonnes by 2031. The outlook is supported by three structural drivers: rising per capita incomes, large-scale infrastructure investments in expressways, railways, logistics parks and ports, and accelerating urbanisation. India’s per capita steel consumption remains roughly half the global average, while urban areas are expected to add tens of millions of residents over the coming decades, sustaining demand for housing and construction.
Consequently, the risk of stranded capacity remains limited as long as future capacity expansion continues to track domestic demand growth. The industry’s ongoing investment commitments therefore reflect confidence in long-term economic fundamentals rather than short-term market optimism.
The report highlights growing trade distortions arising from subsidised excess capacity and the increasing use of tariffs and trade remedies by governments. To what extent can trade protection measures shield India’s steel sector without undermining long-term competitiveness?
The OECD report highlights a sharp increase in subsidies provided by surplus steel-producing economies, particularly China, between 2023 and 2025. These interventions heighten the risk of predatory pricing in growth markets such as India and create significant competitive distortions.
At the factory gate, Indian steel is already among the cheapest in the world. Yet a NITI Aayog assessment estimates that nearly USD 80 per tonne of additional costs are borne by the industry through levies, cross-subsidisation policies, logistics expenses and financing costs. Around 6-12 percent of duties faced by domestic producers are not subsumed under the Goods and Services Tax (GST), preventing input tax credit claims, while imported steel does not face equivalent burdens. In effect, while several economies are subsidising their steel industries, Indian steel is subsidising others, particularly through railway freight cross-subsidisation. These pressures are amplified by the nearly 550 million tonnes of excess capacity located around India, much of it supported by significant state backing.
Against this backdrop, import duties and safeguard measures are intended to address predatory and opaque trade practices rather than shield domestic producers from competition. Similar concerns have led the European Union to impose countervailing duties of up to 35.9 percent on selected Chinese steel products.
Looking ahead, the policy objective should be competitive neutrality. Strengthening Rules of Origin provisions to prevent rerouting and circumvention, while ensuring that downstream industries continue to access steel at market-based prices, will be essential to preserving both manufacturing competitiveness and investment momentum.
The OECD warns that persistent overcapacity could weaken incentives for investment in low-emission steel production. How does this dynamic affect India’s efforts to decarbonise its steel sector?
Persistent global overcapacity can weaken the commercial case for investing in low-emission steel production by placing downward pressure on prices and reducing the ability of producers to recover the higher costs associated with green technologies. This makes policy design particularly important during the steel sector’s decarbonisation transition.
Current incentive structures are often being deployed as trade instruments alongside climate objectives, creating uneven conditions for producers across jurisdictions. The European Union’s Carbon Border Adjustment Mechanism (CBAM) is a case in point. While the framework allows adjustments for carbon costs already incurred in exporting countries, the deduction is linked to domestic carbon prices, estimated at around €13-15 per tonne in India, whereas liabilities are benchmarked against European Union Emissions Trading System prices of roughly €75-90 per tonne. From an emissions perspective, one tonne of carbon dioxide equivalent has the same environmental impact regardless of where it is emitted. A globally linked carbon market, or an alternative mechanism that appropriately adjusts for carbon volumes, would provide a fairer framework for achieving emissions reductions.
Green steel production remains more expensive than the conventional blast furnace-basic oxygen furnace route, making targeted support critical. Indian steelmakers are already piloting hydrogen integration in direct reduced iron-electric arc furnace operations, hydrogen injection in blast furnaces and carbon-capture technologies. The Government of India has also sanctioned multiple projects under the National Green Hydrogen Mission.
Creating demand through green public procurement, private-sector incentives and fiscal support will be vital for bridging the green premium. Combined with technology deployment and policy support, these measures can help major Indian steel producers achieve their net-zero commitments by 2050, twenty years ahead of the national target, while delivering meaningful reductions in emissions intensity by 2030.