- Construction and infrastructure account for around 60% of steel demand
- Long steel likely to face greater risk than flat products if rural construction slows
India’s steel demand outlook for FY27 faces emerging downside risks as meteorological agencies monitor the development of El Nino conditions during the 2026 southwest monsoon season. While El Nino does not directly affect steel production, weaker monsoon rainfall can reduce agricultural incomes, delay rural construction and slow project execution, particularly across construction-intensive regions that account for the largest share of domestic steel consumption.
The transmission mechanism is primarily through the rural economy. Nearly half of India’s net sown area remains rain-fed, making agricultural output and farm incomes highly dependent on the southwest monsoon. Lower farm incomes typically reduce spending on rural housing, irrigation infrastructure and private construction, while also weighing on demand for tractors, commercial vehicles and entry-level passenger vehicles. Although government infrastructure spending should provide an important buffer, prolonged rainfall deficits could moderate steel demand growth by slowing private-sector construction activity.
Past El Nino events weighed on construction activity
Historical evidence suggests that El Nino has frequently coincided with weaker southwest monsoon performance, although the economic impact has varied depending on rainfall distribution and broader climatic conditions. The severe El Nino events of 2002 and 2009 resulted in widespread rainfall deficits and weaker rural construction activity, while the 2015 episode disrupted labour productivity and delayed project execution during prolonged heatwaves. By contrast, the 2023 El Nino had only a limited impact on economic activity as a strong positive Indian Ocean Dipole helped offset rainfall deficiencies, allowing construction activity and steel demand to remain relatively resilient.
The historical record therefore suggests that El Nino alone does not determine steel demand. Rather, the eventual impact depends on how rainfall deficits affect agricultural incomes, construction activity and infrastructure execution during the peak building season.
Construction remains largest steel-consuming sector
Construction and infrastructure together accounted for nearly 96 million tonnes (mnt) of steel demand in FY26, representing around 60% of India’s total finished steel consumption of 161 mnt.
Construction demand increased to 51 mnt in FY26 from 47 mnt a year earlier, while infrastructure demand remained broadly stable at around 45 mnt. Given the sector’s dominant share in overall steel consumption, any prolonged slowdown in project execution or rural housing activity would have a direct bearing on national steel demand.
However, the impact is unlikely to be uniform. Government-funded infrastructure projects are generally less sensitive to monsoon variability than private residential construction, suggesting public capital expenditure could continue to underpin steel consumption even if rural demand softens. The principal downside risk therefore lies in privately funded housing, small-scale construction and rural infrastructure projects that depend more closely on agricultural incomes.
Long products remain more vulnerable than flats
Long steel products, including rebars, wire rods and structurals, remain the most exposed to weather-related disruptions because they are predominantly consumed in residential construction, commercial real estate and infrastructure development. Lower rural incomes and delayed construction activity typically reduce demand for these products more quickly than for flat steel.
Long products accounted for around 54-55% of India’s finished steel consumption in recent years, with demand reaching 80.5 mnt in CY25 compared with 65.1 mnt for flat products. Demand for galvanised and colour-coated roofing sheets could also weaken if rural housing construction slows under prolonged rainfall deficits.
Flat steel consumption, meanwhile, is expected to remain comparatively resilient. Demand from automotive, engineering, capital goods and manufacturing sectors is supported by broader industrial activity rather than monsoon conditions alone. Nevertheless, weaker rural incomes could still weigh on vehicle sales, particularly tractors, commercial vehicles and entry-level passenger vehicles, limiting some of the support these sectors provide to flat steel demand.
Construction activity historically slows during adverse weather
Construction activity has historically remained resilient during periods of normal rainfall but has moderated when weak monsoons coincide with lower rural incomes and slower project execution. The Ministry of Statistics and Programme Implementation’s Infrastructure and Construction Goods Index illustrates this relationship. Growth slowed to 2.8% in FY16 during the 2015 El Nino episode before recovering strongly in subsequent years, while FY24 recorded growth of 9.7% despite El Nino conditions as favourable rainfall distribution and higher government capital expenditure supported construction activity.
The index rose further to 206.7 in FY26, highlighting the strong momentum currently prevailing across infrastructure and construction. This suggests that while El Nino may soften private-sector activity, sustained public investment could prevent a broader slowdown in steel demand.
Regional impact expected to remain uneven
The impact of a weak monsoon is unlikely to be uniform across India’s steel market because rainfall deficits affect construction activity and rural demand differently across regions. Western and central India, particularly Maharashtra, Gujarat, Madhya Pradesh and Chhattisgarh, remain the most exposed due to their dependence on rain-fed agriculture, rural housing and irrigation-linked infrastructure, all of which support demand for long steel products. Parts of Karnataka and Telangana could face similar pressures if rainfall deficits persist, although the impact is expected to vary by sub-region.
In contrast, northern India is relatively insulated by extensive irrigation infrastructure and continued government capital expenditure, while eastern India has historically demonstrated greater resilience despite localised rainfall variability. Weaker farm incomes in the most affected regions could also delay purchases of tractors, commercial vehicles and entry-level passenger vehicles, extending the impact beyond construction into parts of the manufacturing sector. As a result, any moderation in steel demand is likely to be concentrated in construction-intensive and agriculture-dependent regions rather than reflected in a broad-based decline in national consumption.
Outlook
India’s finished steel consumption increased to 161.1 mnt in FY26, up 7.8% y-o-y from 149.5 mnt in FY25, with current industry estimates projecting demand growth of around 8.5% in FY27. While the baseline outlook remains constructive, the pace of growth will increasingly depend on the interaction between monsoon performance, rural incomes and infrastructure spending over the coming months.
For steel markets, the key indicators extend beyond seasonal rainfall totals. Reservoir levels, kharif sowing progress, rural income trends and the pace of infrastructure execution will provide a clearer indication of whether El Nino evolves into a meaningful demand risk. If rainfall improves and public capital expenditure remains robust, India’s steel demand is likely to remain broadly resilient. However, if rainfall deficits persist across key agricultural regions through the remainder of the monsoon season, finished steel demand growth could moderate towards 5-6%, with long products expected to absorb the greatest downside pressure.
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