LNG Supply Disruptions May Force Small Steel Mills in India to Cut Output

India’s small and medium steel producers are facing mounting pressure as disruptions in liquefied natural gas supplies threaten to reduce production across several regions. Industry officials warn that output from smaller steel mills could fall sharply if the supply situation does not improve in the coming days.

The challenge is particularly severe for steel units that rely on gas based direct reduced iron production, a key raw material used by secondary steel manufacturers. Several producers in Gujarat, one of the country’s largest gas consuming regions, have already begun evaluating production cuts as natural gas availability tightens.

Industry executives say the current disruption is linked to geopolitical tensions in the Middle East that have affected LNG supply flows. Some gas suppliers have reportedly invoked force majeure, limiting the availability of gas for industrial consumers. As a result, several small steel plants that depend on imported LNG are struggling to maintain regular operations.

Producers say their operating margins were already thin, and the sudden rise in energy costs has further strained finances. Many units are considering reducing production by up to 50 percent if the supply situation does not stabilise soon. Some have even warned of a temporary shutdown if the shortage continues.

The pressure is not limited to gas based producers. Steelmakers using coal based processes are also facing challenges as global coal prices and freight costs have risen due to the same geopolitical tensions. Industry estimates suggest coal and freight costs have increased by around 10 to 12 percent in recent weeks.

India produces nearly 50 million tonnes of sponge iron every year, much of which is supplied to secondary steel producers that manufacture long steel products used in construction and infrastructure projects. Any prolonged disruption in sponge iron output could therefore have ripple effects across the broader steel supply chain.

Industry bodies are closely monitoring the situation and expect some stabilisation if global supply chains normalise. However, producers warn that sustained volatility in energy markets could continue to impact India’s smaller steelmakers in the near term.