Why I'm Bullish on Green Steel Stocks

I am sure you are familiar with the Tata Steel tagline... 'We also make steel'.

Turns out in 2025 India has extremely critical role in the global steel supply chain.

While global steel capacities have remained unchanged over past few years, India's swift economic growth, along with government's incentives for domestic manufacturing, investments in infrastructure, and rapid urbanization have bolstered steel capacities.

India is currently the second-largest steel producer globally.

But along with the need to meet the required demand, there is also need for sustainable steel production initiatives.

The steel industry is a significant contributor to global carbon dioxide emissions. According to the International Energy Agency (IEA), the iron and steel sector directly accounts for 7% of global energy system emissions.

Imagine the ripple effects of replacing fossil fuels here. It is nothing short of revolutionary.

Think about industries like steel production, cement manufacturing, and long-haul transportation. These heavyweights are tough nuts to crack when it comes to cutting emissions, as electrification is not always practical or cost-effective.

As per Indian Stainless Steel Development Association, domestic steel consumption has registered a growth of 84% over the last five years. Given the role of steel in sectors like manufacturing, defence, infrastructure etc, demand is here to stay.

But as efforts to combat climate change intensify, the quest for clean and sustainable energy solutions has taken centre stage. As the world races towards decarbonisation, the steel industry faces immense pressure to adopt greener production methods.

Enter green hydrogen.

Green hydrogen is hydrogen gas produced through the electrolysis of water, powered entirely by renewable energy sources such as solar and wind.

This carbon-neutral process differentiates green hydrogen from other forms of hydrogen that rely on fossil fuels.

Among the solutions to make steel with less carbon intensity, green hydrogen stands out as a transformative energy source.

In India, where renewable energy is abundant, green hydrogen presents an unparalleled opportunity to lead the clean energy revolution.

As the industry stands at a critical juncture with a dual challenge of reducing the carbon footprint, and keeping production costs in check, India's steel sector plans to keep the middle pathway.

Crude Steel Production

Finished Steel Production

The race to reduce carbon emissions and tackle climate change has brought green hydrogen into the spotlight as a game-changing clean energy solution.

In India, the steel sector accounts for around 12% of the CO2 emissions with an intensity of 2.55 tons of CO2/ ton of crude oil, higher than the global average of 1.85 tons CO2/ton of crude oil.

The Indian steel sector is also split into two producer segments that use different technologies for production.

The first are a handful of integrated producers who can spend more capital on energy-saving technologies, expensive imported natural gas, or upskilling their workforces.

Consequently, they can achieve economies of scale and produce larger amounts of steel from raw materials. These producers are mostly private companies with sizable international presences outside India (e.g. Tata Steel and JSW Steel).

The second are hundreds of medium and small enterprises who each have smaller production capacities. They vary in capacity, profitability, have less trained workers, and cater to regional steel demand.

These producers depend on cheaper, inefficient technologies and domestic coal, increasing their emissions and energy use.

Green steel refers to steel that is produced using environmentally sustainable methods and green hydrogen is one solution that can be used to reduce the sector's carbon footprint significantly.

While India is still in its initial stages of green steel production, the Ministry of Steel has set short, medium, and long-term targets to decarbonise this sector.

By FY35, the expense of producing green steel through the hydrogen direct reduction method is expected to decrease significantly. As per estimates it could end up becoming 26% less costly than in FY24, owing to the anticipated reduction in the price of green hydrogen.

Tata Steel is actively developing green steel initiatives in India, focusing on reducing carbon emissions and adopting sustainable practices.

This includes using biochar to lower emissions in the Jamshedpur plant, investing in a new scrap-based electric arc furnace plant in Ludhiana, and exploring the use of nuclear power for green steel.

The company is building a 7.5 lakh tonne per annum scrap-based electric arc furnace (EAF) plant in Ludhiana, which will be its first low-carbon green steel plant in India. This modern plant will use energy-efficient technology to produce long steel products.

The Indian steel sector is on a trajectory of growth, driven by domestic demand, government policies, and increasing investments. While challenges like raw material security and sustainability remain, the industry is actively addressing them through technological advancements and strategic partnerships.

So, the steel sector's reliance on imported raw materials like nickel, coking coal, and manganese poses a challenge. Strengthening global partnerships and focusing on technological advancements are crucial.

Since commodity stocks tend to be cyclical, investors should have a watchlist of businesses that are both sustainable and profitable. Such stocks can be bought if available at reasonable valuations in the market.

Warm regards,


Tanushree Banerjee
Editor, StockSelect
Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst)