India's Ambitious Steel Goals Face Green Hurdles

The National Steel Policy 2025 sets a bold path for India's steel industry, aiming to more than double crude steel capacity to 400 million tons by 2035-36. Simultaneously, the sector must reduce its carbon intensity by 25% to support India's net-zero goals. This dual objective is crucial for meeting soaring domestic demand while addressing global environmental concerns. However, achieving these targets presents significant challenges for the sector and its major players like JSW Steel and Tata Steel.

The Emission Intensity Gap

Currently, Indian steelmakers emit about 2.65 tons of carbon dioxide for every ton of finished steel produced. This is roughly 32% higher than the global average of 2 tons. The policy aims to cut this intensity to 2 tons of CO2 per ton of steel by 2035-36, aligning with India's commitment to developing a domestic carbon market.

Production Routes: High Carbon Footprint

The high emissions stem largely from India's predominant use of the Blast Furnace-Basic Oxygen Furnace (BF-BOF) production route, which is more carbon-intensive than the Electric Arc Furnace (EAF) method favored in North America and Europe. While EAFs can use scrap metal or Direct Reduced Iron (DRI), India also uses coal-based DRI in its EAF operations, contributing to its overall carbon footprint. The BF-BOF process emits approximately 2.3 tons of CO2 per ton of steel, compared to about 0.7 tons for scrap-based EAFs.

EU Carbon Tax Threatens Exports

International pressure is mounting, particularly from the European Union's Carbon Border Adjustment Mechanism (CBAM), which began applying carbon levies on steel imports in January 2026. Indian steel exporters, especially those using high-emission BF-BOF methods, face significant threats. To remain competitive in the EU market, they may need to absorb carbon costs, potentially requiring price reductions of 15-22% on their exports.

Infrastructure Hurdles: Coal Dominance, Gas Gaps

The transition is hampered by substantial infrastructure limitations. Only about 21% of India's blast furnace capacity and 5% of DRI capacity have access to gas pipeline infrastructure, forcing heavy reliance on coal. This is compounded by the fact that 75% of India's electricity is generated from coal. While the policy promotes gas-based steelmaking and increased scrap use, the shift requires massive investment in new technologies and infrastructure, including pathways for green hydrogen.

Market Performance and Investor Confidence

Despite these challenges, major Indian steel companies show considerable financial strength. JSW Steel has a market capitalization of approximately ₹2.95 trillion and Tata Steel stands at around ₹2.56 trillion (as of April 2026). Their P/E ratios are competitive, often around 25-38, with industry averages in a similar range. JSW Steel's stock saw a recent rally, and Tata Steel has posted strong annual returns, outperforming benchmarks like the Sensex. Analyst sentiment for both companies remains largely positive, with price targets suggesting potential growth.

Demand Forecast Remains Positive

Analysts forecast robust demand growth for Indian steel, projected at 8-9% for 2025 and continuing through fiscal years 2026 and 2027. This is driven by government infrastructure projects and the construction sector. Safeguard duties on imports are also expected to support domestic producers by improving capacity utilization. While steel prices and earnings are anticipated to improve, the industry's long-term sustainability hinges on successfully navigating its decarbonization journey and global carbon regulations.