India’s small steelmakers struggle to go green

India’s small steelmakers face a difficult trade-off: they must reduce emissions while operating on narrow margins. Many are already dealing with weak demand, regional overcapacity and higher electricity tariffs in Chhattisgarh. Decarbonisation can therefore look like an unaffordable extra cost rather than a business opportunity.

Raipur shows the problem clearly. The cluster has about 316 secondary steel enterprises, many using coal to make direct reduced iron before melting it in electric or induction furnaces. This route is highly emissions-intensive, but replacing equipment, improving efficiency or changing fuels requires capital that smaller firms often lack.

Government carbon-intensity targets and the carbon credit trading scheme are increasing pressure. However, implementation has been delayed until 2026–27, giving some time but not solving the financing gap. Industry experts call for concessional finance, viability-gap funding and credit guarantees so smaller producers can invest without carrying the entire risk.

The secondary steel sector is the part of India’s steel industry largely made up of micro, small and medium-sized enterprises. These companies produce steel for construction, industry and infrastructure. They typically rely on purchased inputs such as coal-based direct reduced iron and scrap metal, rather than controlling the entire process from raw materials to finished steel.

Large integrated producers such as Tata Steel and JSW Steel generally operate with greater financial and technical capacity. The primary route commonly starts by firing virgin iron ore in blast furnaces. Secondary producers instead use direct reduced iron and scrap, then melt these inputs mainly in electric or induction furnaces. This structure gives them a different cost and emissions profile.

The distinction matters because secondary producers are numerous, economically important and harder to decarbonise. They face tighter margins and less investment capacity. Yet their coal-based route alone accounts for almost 30% of India’s crude steel output, making their transition central to national emissions goals.

Small and medium-sized steelmakers are not a minor corner of India’s industry. Together, the micro, small and medium-sized enterprises that make up much of the secondary sector produce around 40% of India’s crude steel. India is the world’s second-largest steelmaking nation, so this share represents a major part of national industrial capacity.

Their importance is especially visible in Chhattisgarh. The Raipur cluster alone has an estimated 316 secondary steel enterprises. Around these plants are networks of workers, transporters, traders, contractors and small suppliers. The industry makes steel bars, tubes and other products used in construction, industry and infrastructure across India.

The scale also makes decarbonisation harder to manage. Producers using coal-based direct reduced iron account for almost 30% of India’s crude steel output, while producing more emissions than the global average. Any national carbon-intensity policy must therefore reach many smaller firms, not only large integrated producers.

Direct reduced iron removes oxygen from iron ore without melting the ore in a blast furnace. In the route used widely by India’s secondary steelmakers, coal provides the heat and reducing conditions needed to make sponge iron. The sponge iron is then melted, often with scrap, in an electric or induction furnace.

The key problem is the coal itself. Burning coal releases carbon dioxide, while coal also participates in the chemical reduction of iron ore. The result is a carbon-intensive production route before the material even becomes finished steel. The Council on Energy, Environment and Water identifies this route as India’s most emissions-intensive steelmaking method.

It produces 2.7–3.1 tonnes of CO2 for every tonne of crude steel, compared with a global average of about 1.92 tonnes. The article does not provide a full comparison with every other method, but it makes clear that reducing coal use, improving energy efficiency or changing fuels will be important.

The article identifies three broad routes for cutting emissions: cleaner technologies, better energy efficiency, and changes to fuels or raw materials. It does not specify a single technology that every small steelmaker should adopt. The appropriate choice would depend on each plant’s equipment, inputs, electricity supply and finances.

For example, a producer could first improve the efficiency of its existing operations, then consider lower-carbon fuels or alternative raw materials. The article says secondary steelmakers rely heavily on coal-based direct reduced iron and scrap, while mostly using electric or induction furnaces. Changing that mix could reduce emissions, but would require technical assessment and investment.

The immediate reality is uncertainty. Industry representatives say the government is pushing energy efficiency, but the way forward remains confusing. Carbon-intensity targets and the carbon credit trading scheme will increase pressure. Concessional finance, viability-gap funding and credit guarantees could help smaller firms test and adopt cleaner options.

Decarbonisation usually requires new equipment, engineering expertise and time to recover the investment. Large integrated producers generally have stronger balance sheets and greater technical capacity, so they are better positioned to fund such changes. Smaller steel companies operate in a highly competitive market with little room to absorb higher costs.

The contrast is sharp in Chhattisgarh. Secondary producers face weaker-than-expected demand, regional overcapacity and higher electricity tariffs. Many also rely on coal-based direct reduced iron, meaning that changing technology, fuels or raw materials could affect both capital costs and daily operations. Their smaller scale makes each investment more financially significant.

Experts say public support is needed to make decarbonisation viable. Suggested measures include concessional finance, viability-gap funding and dedicated credit guarantees. Without such tools, producers may be reluctant to invest because they are focused on survival and cannot carry the transition risk alone.

Smaller producers support tens of thousands of workers and many more transporters, traders, contractors and suppliers. If carbon requirements make production more expensive, financially weak firms could face sharper pressure. That could affect employment and the local networks built around steel clusters, although the article does not predict closures or quantify job losses.

Steel prices could also face upward pressure if producers pass decarbonisation costs to customers or if some output becomes unavailable. Construction and infrastructure depend on steel, so tighter supply or higher prices could affect those users. These are possible consequences, not outcomes stated as certain in the article.

Exports may become harder if overseas markets demand lower-carbon steel, since the article identifies pressure from foreign markets. India’s carbon-intensity targets and carbon credit scheme are intended to address emissions, but implementation is delayed until 2026–27. Financial support could help preserve production, jobs and supply while firms transition.