The Indian steel industry was expected to witness a glut in production over the next two-three years is, given the large capacity addition plans of most of the steel majors in the country, according to a recent report by ICRA.

Over the next three years, the Indian steel industry was likely to see a capacity expansion by about 40 million tonne, taking the total steel production close to 130 million tonne by 2015, said Soumyo Roy, analyst, ICRA. The present capacity of the Indian steel industry is close to 89 million tonne.

As the prospect of a sharp upturn in demand growth remained weak, at least in the near to medium term, such excess supply was likely to weigh down on the steel prices going forward, the ICRA report said.

However, steel makers might phase out the capacity expansion plans over a longer time frame in view of weak outlook, said Roy.

Some of the major expansion plans of companies include addition of 8 million tonne steel by Sail, around 6 million tonneby Tata Steel and around 5 million tonne by Jindal Steel Power Limited. This apart, capacity addition by small and big companies in the range of 0.5-1 million tonne was in the offing, said Roy.

Indian finished steel production grew by a moderate 6.6 per cent in FY12, after having grown at 8.8 per cent in FY11. Supply side issues like low availability of iron ore, besides weakness in demand conditions, led to this moderation, which resulted in the domestic industry witnessing a capacity utilization of around 79 per cent.

After registering growth of 13.3 per cent and 9.9 per cent in FY 10 and FY 11, Indian steel consumption grew at only 5.5 per cent during FY 12, on the back of a slowdown in demand from its key consuming industries namely construction, capital goods and automobiles.