The MSME Crisis Nobody Is Talking About: Gas Shortages Are Shutting Down India’s Steel Backbone

While the steel industry’s attention is fixed on mill price hikes and iron ore import records, a quieter catastrophe is unfolding across India’s industrial belts. Thousands of micro, small, and medium steel enterprises — the coating units in Pune, the stainless steel fabricators in Ghaziabad, the cold rolling mills at Mundra, the downstream processors in Jajpur — are either shutting down or operating at a fraction of capacity. The cause is deceptively simple: they cannot get gas.

This is not a temporary inconvenience. This is an existential threat to the segment of India’s steel industry that employs the most people, serves the most customers, and has the least ability to absorb shocks.

The Ground-Level Reality

The data from India’s industrial hubs paints a picture that aggregate national statistics fail to capture.

Pune: One of India’s major automobile manufacturing centres, the crisis has hit the supply chain feeding vehicle production. Nearly 30% of the city’s auto component MSMEs — particularly those involved in plating, coating, and fabrication — rely on LPG for furnace operations. Over the past two weeks, limited supply has crippled their production. Industry sources report that approximately half of the units in the supply chain have already exhausted their LPG stocks, with no immediate replenishment available. At coating units, black market LPG cylinder prices have reportedly surged to approximately ₹6,000, compared to the normal commercial price of around ₹1,400–1,900. Enlight Metals’ facility in the region has remained shut for over ten days.

Ghaziabad: The stainless steel processing hub of northern India. An estimated 40–50% of smaller units are either completely shut or operating intermittently. Stainless steel production relies heavily on industrial gases — propane, LPG, and natural gas — for annealing, pickling, and heat treatment. Without these inputs, the production process simply cannot be completed. Jindal Stainless, India’s largest stainless steel producer, confirmed that its own plants are running at reduced capacity due to fuel shortages.

Gujarat’s Mundra cluster: Home to a significant concentration of cold rolling units, operating at roughly 50% of capacity. These mills, which convert hot-rolled coils into higher-value cold-rolled products, depend on gas for annealing furnaces. Without consistent supply, they are unable to run continuously, resulting in quality inconsistencies and delivery delays even when they do operate.

Odisha’s Jajpur district: A critical hub for downstream steel processing. Units are running at 60–70% of capacity. The DRI-based producers in this region face a compounded challenge — they need gas not only for downstream processing but for DRI production itself.

Why This Is Happening

India imports approximately 60% of its LPG, with roughly 90% of those imports passing through the Strait of Hormuz. When the strait was effectively closed on March 2, the consequences were mathematically inevitable — but the government’s response has amplified the impact on industry.

Facing a potential domestic cooking gas crisis affecting hundreds of millions of households, the government invoked emergency measures under the Essential Commodities Act. It directed refineries to divert all C3 and C4 gas streams — propane, butane, and propylene — away from industrial use to maximise LPG production for households. This was a politically rational decision. It was also a devastating one for industrial users who suddenly lost their feedstock allocation.

The Indian Steel Association, in a letter to the Minister of Steel dated March 7, warned of a “huge adverse impact” on SMEs in the steel sector. JSW Group’s internal communications revealed that gas shortages were disrupting its own operations, with JSW Steel Coated Products facing a potential shutdown. The company received a force majeure notice from Petronet LNG, its key supplier, citing the crisis.

The Workforce Exodus Nobody Is Counting

The Pune situation illustrates a secondary crisis that could outlast the gas shortage itself. Lakhs of workers employed in the MSME supply chain — many of them migrants from North India — depend on small 5 kg LPG cylinders for cooking. With disruptions in cylinder distribution, many have started returning to their home states. This reverse migration, eerily reminiscent of the COVID-19 exodus of 2020, threatens to create a labour shortage that persists long after gas supply normalises.

When a fabrication unit shuts down for two weeks, it doesn’t simply restart on Day 15 when gas arrives. The skilled workers have dispersed. The customers have found alternative suppliers or deferred their projects. The working capital has been consumed by overheads during the idle period. The restart is slow, costly, and uncertain. Some units will not restart at all.

Mandi Gobindgarh, West Bengal, and Beyond

The damage extends well beyond the specific clusters mentioned above. In Mandi Gobindgarh, Punjab’s steel manufacturing heartland, producers report meeting only 50% of customer demand. In Gujarat’s broader MSME belt, smaller mills are fulfilling about 70% of orders. In West Bengal’s foundry belt, some units have seen a 10% drop in the production of export castings, with fears that this could widen to 20% if shortages persist.

Even units that primarily use coal are not immune. LPG is required for essential processes like cutting, lancing, and maintenance that cannot be substituted with coal. When LPG is unavailable, even a coal-fired furnace eventually has to stop.

The Global Longs Market Adds External Pressure

This domestic crisis is unfolding against a global backdrop that offers no relief. The International Rebar Producers and Exporters Association (IREPAS) described the current state of the global long products market as “unstable” with an “extremely unpredictable” outlook in its March 2026 assessment.

IREPAS noted that the Middle East conflict has driven energy prices sharply higher, disrupted supply chains, and pushed up bunker fuel and freight rates. Inventories have declined, but demand remains weak amid uncertainty over the conflict’s duration and potential expansion.

In Turkey — historically a major competitor and price-setter in the global longs market — construction activity remains slow and steel exports have fallen approximately 20% compared to the same period last year. Turkish mills are adjusting production to match weakened demand.

European mills have attempted price increases, but the market’s slow post-winter recovery has limited buying activity. CBAM uncertainty continues to make EU imports a risky proposition for non-European suppliers. IREPAS concluded that it is “very difficult to talk about competition under the current levels of protectionism, geopolitical issues and uncertainty.”

For Indian long product exporters — already squeezed by domestic gas shortages — the weak global market means they cannot easily redirect excess capacity (if they had any) to export markets. They face cost pressure at home and demand weakness abroad simultaneously.

What Government and Industry Responses Look Like

The government is not entirely idle. Refineries have been pushed to increase domestic LPG output, resulting in a reported 25% rise in production during March 2026. PNG (piped natural gas) enquiries have jumped 20%, with 22,000 new connections added in just 15 days, suggesting a structural shift towards pipeline gas where available.

Tamil Nadu has announced a subsidy of ₹2 per unit of electricity for restaurants and food businesses switching to electric cooking. While not directly relevant to steel MSMEs, it signals state-level awareness of the crisis. The state’s development commissioner has directed officials to assess the impact on LPG-dependent industrial units.

However, the fundamental constraint remains: there is no quick replacement for 60% of a country’s LPG supply when the shipping route is blocked. Alternatives like dimethyl ether and electric heating exist in theory but cannot be scaled in weeks.

The Leadership Imperative

India’s steel sector is fracturing along a line that has always existed but rarely been this visible. On one side: large integrated producers with diversified energy access, captive mines, port infrastructure, and the financial resilience to absorb temporary shocks. They are announcing price hikes, recording record iron ore imports, and positioning for the capacity super-cycle ahead.

On the other side: MSMEs that employ far more people per tonne of steel produced, serve the last mile of India’s manufacturing economy, and are now facing an existential fuel crisis with no savings buffer, no energy diversification, and no political leverage to redirect supply allocations.

Leaders in this industry — whether they run integrated mills, trade steel, or set policy — must navigate this duality. The survival of vulnerable supply chains requires immediate intervention: emergency gas allocation protocols for industrial users, temporary duty relief on alternative fuels, and working capital support for units forced to idle. The capacity super-cycle will mean nothing if the downstream processing ecosystem that makes India’s steel usable has been hollowed out by the time it arrives.

The broader lesson is one of energy security. India’s steel industry cannot continue to build capacity that depends — directly or indirectly — on fuel supplies passing through a single maritime chokepoint. The Hormuz crisis has exposed this vulnerability with painful clarity. Whether industry leaders act on this lesson or merely wait for the crisis to pass will determine the sector’s resilience for the next decade.

Related on SteelMath: Track the crisis across our Hormuz Impact Assessment, Propane Crisis Analysis, and Gujarat Production Cuts coverage. Use our Weight Calculator for production planning.