Gujarat’s Small Steel Mills Face 50% Production Cuts — The Hormuz Crisis Hits Home

While the week’s headlines celebrated mega-investments and green technology milestones, an urgent crisis is unfolding at the other end of India’s steel ecosystem. Scores of small and medium steel producers — the backbone of India’s secondary steel sector — are warning of production cuts as severe as 50%, with some facing complete shutdowns if gas supplies don’t recover within days.

The Ground Reality

The warning came directly from the production floor. Yogesh Kanakiya, director at Triveni Iron and Steel Industries, a Gujarat-based producer, told Reuters: “We are looking at a 50% production cut as of now and a complete halt ahead, if supplies don’t improve within a week.”

He is not alone. Anshum Goyal, managing director at Friends Steel Group in Gujarat, described the financial reality: “We work on wafer-thin margins and our margins have shrunk. We are concerned over supplies and it is affecting our decision-making in terms of prices we need to keep.”

These aren’t fringe operators. Gujarat is India’s largest gas-consuming state and home to a dense cluster of small steel mills that depend on imported LNG for their operations. When gas supply is disrupted, these mills don’t have alternative fuel options they can switch to overnight.

Why Gas, and Why Now

The Hormuz crisis has severed the primary supply route for LNG into India. Qatar, which accounts for approximately 40% of India’s LNG imports, was forced to halt production at Ras Laffan after Iranian drone strikes early in the conflict. Petronet LNG, India’s largest LNG importer, issued force majeure notices to both its supplier (QatarEnergy) and its domestic buyers including GAIL, Indian Oil, and BPCL.

The supply disruption cascaded rapidly. Gujarat Gas, the primary industrial gas distributor in the state, declared force majeure and restricted daily gas supply to industrial customers effective March 6. Industry representatives reported supply reductions of approximately 50% in many areas, affecting production schedules and order deliveries across multiple sectors — ceramics, chemicals, textiles, and steel.

For steel specifically, approximately 6% of India’s total steel output comes from gas-based direct reduced iron (DRI) processes. That may sound small as a national percentage, but it translates to real production from real mills that employ thousands of workers and supply construction-grade steel to local markets.

The Double Squeeze: Gas and Coal

The pain is not limited to gas-dependent producers. Coal-based producers — which account for roughly 50% of India’s steel output through blast furnaces — are also facing input cost pressure. Rahul Mittal, chairman of the Sponge Iron Manufacturers Association, stated that the ongoing geopolitical tensions have led to roughly a 10–12% increase in coal and freight costs.

South African thermal coal prices at Indian ports have jumped to three-year highs, driven by firmer freight rates and broader Middle East tensions, according to BigMint. Vasudev Pamnani, director at Gujarat-based coal trader i-Energy Resources, confirmed that coal buying in India has become more cautious amid higher freight costs and elevated global prices.

India produces approximately 50 million metric tonnes of sponge iron annually, almost all of which is consumed by secondary steel producers as raw material. When both gas and coal costs surge simultaneously, the entire secondary sector is squeezed — and these are producers who typically operate on margins of 2–4%.

The Ripple Effects Beyond Gujarat

Reports from other industrial hubs paint a broader picture of distress. Manufacturers in Mandi Gobindgarh, Punjab — one of India’s most important secondary steel clusters — are reportedly meeting only about 50% of customer demand. In Gujarat, smaller mills are fulfilling roughly 70% of their orders. Even coal-dependent units that don’t directly use natural gas still need LPG for essential processes such as cutting, lancing, and maintenance operations.

The government has responded with the Natural Gas (Supply Regulation) Order, 2026, which aims to regulate gas distribution across sectors to ensure essential services continue. But for industrial consumers — steel mills among them — the practical effect has been rationing, not relief.

The Indian Steel Association has warned of a “huge adverse impact” on MSMEs in the steel sector, which collectively employ a large workforce and produce a significant share of India’s long products (TMT, rebar, wire rod, structural sections).

What This Means for Steel Prices

Supply disruption at the production level translates directly into price support — and ultimately price increases — at the market level. Here’s the transmission mechanism:

When secondary producers cut output by 30–50%, the supply of TMT bars, rebar, and structural steel in regional markets tightens. Buyers who previously sourced from local IF/EAF mills must either wait for supply to resume or turn to larger producers (Tata Steel, JSW, SAIL) whose products command a premium. This tightening effect has already contributed to the ₹2,000–2,500 per MT price increase in finished steel since the crisis began.

If the gas shortage extends beyond two more weeks, expect a further leg up in long product prices, particularly in Gujarat, Punjab, and Maharashtra where secondary mills are concentrated.

What Should Industry Professionals Do

If you’re a small mill operator: Assess your gas and coal inventory honestly. If you can secure forward coal contracts at current prices, do it — prices may go higher before they come down. Explore whether partial production (running fewer shifts, producing only high-margin products) is economically viable versus a full shutdown and restart later.

If you’re a trader or stockholder of long products: Supply tightness in TMT and structural steel is real and worsening. Material from secondary mills will become harder to source in the next 2–4 weeks. Stock up from primary producers while allocation is available.

If you’re a buyer (construction, fabrication): Expect delivery delays from smaller suppliers. Build a backup supplier list that includes primary mill distributors. Factor in ₹1,500–2,500 per MT of additional cost into your project estimates versus pre-crisis levels.

Use SteelMath’s Weight Calculator to estimate material requirements, and refer to our production cost analysis to model how gas and coal price increases affect DRI-based and BF-BOF production economics.