A China problem is hampering rating headroom of India's steel giants

Fitch Ratings on Tuesday reduced the rating headroom for India's two steel giants, JSW Steel Limited and Tata Steel Limited, amid the ongoing challenges posed by cheap steel imports from China and the potential impact of aggressive tariff policies from various economies including the US.

The agency, in its latest report, has said that domestic steel prices will come under pressure in the financial year ending March 2026. Tata and JSW Steel's current ratings stands at BBB-/Negative and BB/Stable respectively.

In the fiscal year ending March 2024, India became a net importer of finished steel. Meanwhile, shipments from China reached a record high between April and December. The subcontinent, one of the world's fastest growing economies, is seeing its steel demand rise rapidly due to fast-paced urbanization, infrastructure, and industrial growth. Furthermore, the government expects steel production to increase from 120 million tons to 300 million tons in the next five years.


Fitch Ratings has assessed that both companies are likely to breach their negative sensitivity thresholds for EBITDA leverage in FY25, with JSW surpassing 3.7x and Tata expected to exceed 3.0x. The outlook for FY26 remains bleak, with expectations of continued margin pressures despite potential improvements in EBITDA margins for both firms, Fitch further said.

However, the agency expects some recovery with contributing factors like sustained domestic demand growth, a decline in key input costs such as iron ore and coking coal, and China's efforts to cut steel production while implementing stimulus measures to bolster its economy.

However, Fitch has warned that margins will still be below mid-cycle levels, with uncertainty surrounding the pace of recovery in China's steel industry posing additional risks.

JSW and Tata possess the flexibility to defer certain capital expenditures, which could help them create financial buffers amid these challenges, as per the rating agency. Fitch has forecasted that both companies may return to mid-cycle margin levels by FY27, contingent upon the resolution of current pressures. "Nevertheless, a sustained weakness in margins is a key risk to the ratings," Fitch added in its report.

Tata Steel, in addition to these challenges, is grappling with execution risks linked to the restructuring of its European operations. The report noted that the company is more vulnerable than JSW to state mining taxes, following a ruling by Supreme Court in 2024 that upheld the authority of states to impose such taxes.

In what may be a lifeline for the steel giants, Fitch Ratings said that any measures taken by the Indian government to shield domestic steelmakers from cheaper imports, such as imposing anti-dumping duties, could positively affect their margin projections for FY26. "The timing and scale of such a measure remains uncertain and will be a function of the government’s efforts to balance the interests of steelmakers and consumers, among other factors. A safeguard duty investigation on certain steel products by Indian authorities has been underway since December 2024. India last imposed substantial tariff-related measures in 2016 when it faced a significant surge in imports," Fitch said.

While the recent imposition of 25% tariffs by the US on steel imports is not expected to directly impact Indian steelmakers significantly, due to their minimal export exposure to the US ($406 million trade deficit in steel goods).

Even though India accounts for just 1% of US steel imports, it could lead to an influx of redirected steel exports from countries heavily reliant on US markets, potentially pressuring domestic prices.

Despite these challenges, Fitch anticipates that India’s steel demand will grow by approximately 10% in FY26, fueled by robust public spending and demand from the construction, infrastructure, and manufacturing sectors.