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* Steel prices remained firm during 2QFY27 despite seasonal demand weakness, mainly supported by lean channel inventories, maintenance-led supply constraints and rising input costs. Domestic HRC prices have climbed up 7% MoM to a four-year high of INR62,000/t in Sep’26, while CRC prices have increased 8% MoM to INR70,500/t. Rebar prices have also recovered sharply to INR56,800/t from INR48,850/t in Jun’26. This rally signals a broad-based pricing strength across both flat and long products.

* The improvement in steel prices is majorly attributed to the cost pass-through. Input costs (coking coal, iron ore and pellet) have simultaneously increased, raising the cost base for steelmakers. Premium Australian coking coal price has risen to USD300/t from USD260/t in Jun’26, implying that every USD10/t increase in coking coal adds ~USD7-8/t to input costs, creating a margin headwind. Iron ore and pellets prices also remained firm during the muted demand cycle.

* Domestic steel volumes remained fundamentally healthy. India produced ~67.4mt of finished steel during Apr-Aug’26, up 3.7% YoY, while finished-steel consumption grew by a stronger 7.2% YoY to 70.3mt. The faster growth in consumption relative to production has kept the domestic market relatively tight. The global volume backdrop is equally supportive from a supply perspective. Global crude steel production declined 0.6% YoY to ~1.08bt during Jan-Jul’26, with China’s output falling 3.1% YoY to ~577mt. The structural decline in Chinese steel output is important for global market balance given China’s major role in global steel production and exports

Our View

* In the near term, we remain constructive on domestic steel pricing as we believe the domestic steel cycle is transitioning from volume-led recovery to pricing- and cost-led earnings growth.

* Lean inventories, constrained supply, resilient underlying consumption and global cost inflation provide the foundation for higher steel prices. If postmonsoon demand normalizes as expected, the sector could enter 2HFY27 with a considerably stronger realization environment than the current consensus assumptions imply.

* We believe the immediate earnings trajectory will be supported by positive realization momentum, while margin sustainability will depend on mills’ ability to pass through further price increases as the impact of cost inflation will be evident steadily in the coming quarters. Companies with stronger cost positions, captive raw materials and greater downstream/value-added exposure should be better positioned to defend margins.

* Top picks: JSW Steel and Tata Steel.

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