In recent years, the Indian government has given significant impetus to infrastructure development, driven by the growing need to support ongoing economic growth and rapid urbanisation. National development goals such as Viksit Bharat 2047 have further amplified the need for rapid construction across key infrastructure sectors. However, alongside speedy development, material market price dynamics have emerged as a key market influencer, impacting the feasibility of infrastructure asset creation. The cost of developing infrastructure, including essential materials such as cement, steel, metals and labour costs, constitutes a significant portion of the overall project cost. Therefore, evaluating these market dynamics becomes essential.
Trends in construction costs
As per CBRE, the construction cost in India for greenfield projects has escalated at a modest annualised rate of 2-4 per cent in 2024, marking a shift from the previously seen 6-8 per cent price hikes in 2021-22. This recent increase has been driven by multiple factors, including improvement in the inflationary environment and the easing of supply chain constraints. Interestingly, the prices for key input materials, including cement and steel, witnessed a decline during the year.
Moreover, domestic factors such as subdued construction activity in 2024, owing to it being an election year, intensified domestic competition in the material industry, and additions to production capacities contributed towards downward pressure on prices. The shortage of skilled labour has also continued to plague the sector. As a result, despite the general price moderation in essential materials, labour cost increases have counterbalanced material cost savings, leaving overall construction costs in an elevated range.
The next section analyses the key trends in construction materials such as steel and cement.
Steel market
Domestic steel prices have remained under pressure due to multiple factors. Rising competitive imports from China and countries with free trade agreements such as Japan, South Korea and Vietnam, coupled with declining exports, have partly contributed to this downward pressure. It has been further compounded by a general decline in global steel prices. Domestic steel prices have reduced by approximately 3-5 per cent in the fourth quarter (Q4) of 2024 compared to Q4 2023.
The international trade position of the Indian steel industry has significantly changed over the past two years. In 2022-23, India was a net exporter of finished steel, with net exports of around 696,000 tonnes. However, in 2023-24, the trend reversed and India transitioned into a net importer of finished steel at 833,000 tonnes. This further rose sharply to 4,374,000 tonnes in 2024-25 (till January 2025), marking an increase of approximately 425 per cent in the first 10 months of FY2025.
This reversal occurred amid a steel consumption growth of 12 per cent during the same period, significantly outpacing the growth of domestic steel production, which is merely 5 per cent. Despite robust demand, overall production by domestic mills remained largely flat. Larger mills, which account for approximately 55 per cent of the total production, recorded a modest increase of 1.3 per cent year on year, whereas smaller and secondary mills increased their production by nearly 10 per cent. Amid robust demand, major steel players recorded a production flatline, possibly due to import concerns and planned pullbacks in production on account of maintenance.
Steel pricing is currently facing pressures from multiple factors, including the real estate crisis in China in 2024, which has led to increased steel exports to the global market, and the recent tariffs imposed by the US on its imports, which may redirect surplus steel supplies from countries such as Japan, South Korea and China towards other markets, including India – potentially resulting in an influx of low-cost steel imports.
Although steel prices have begun showing signs of recovery in recent months, these gains might be difficult to sustain. As per industry reports, steelmakers have added new capacities that could push companies to compete for a greater market share, coupled with the looming threat of rising imports. These developments are expected to limit any significant upward movement in prices. In response, the Indian government is considering imposing a 12 per cent import duty on several categories of steel to shield domestic producers from low-cost imports, particularly from countries such as China. As per CRISIL Ratings, this duty could potentially drive steel prices upward by 4-6 per cent.
Cement market
Cement prices have recorded an approximately 6-8 per cent decline during Q4 2024 compared to Q3 2023. This drop was driven by subdued demand, new supply additions, intensifying competition for market share, and industry consolidation by major players, including Ambuja Cements Limited and UltraTech Cement Limited. As per CRISIL Ratings, since 2023-24 as of March 2025, 51 million tonnes (mt) of cement production capacity has been acquired, and an additional 14 mt of capacity are expected to be acquired in the first half of 2025-26. Key developments included UltraTech’s acquisition of India Cements Limited, Kesoram Industries Limited’s cement business and Star Cement. Similarly, Ambuja Cements acquired Penna Cement Industries Limited and Orient Cement Limited, among others.
The cement industry has experienced a stunted 3.5 per cent increase in demand for the first nine months of 2024-25. This sluggish growth is attributed to a weak first half, impacted by the general elections, followed by a delay in the pick-up of construction activity in key sectors such as roads. Despite project execution and awards gaining momentum in the latter half of the year, cement demand is forecasted to grow by only 4 per cent year on year in 2024-25, as per India Ratings and Research. In line with this, cement prices have been on an upward trend since November 2024. Industry reports suggest that while stronger construction momentum may provide some stability, further supply additions and heightened competition could continue to exert downward pressure on prices.
Other key materials
Domestic entities operating in the non-ferrous metal space continue to see growing demand from the infrastructure sector. As per ICRA estimates, the domestic demand growth of key metals such as aluminium, copper and zinc is expected to rise by approximately 7-10 per cent in 2024-25. The prices of non-ferrous metals have remained strong, with the 12-month wholesale price index (WPI) average in 2024 at 153.63 compared to 145.17 in 2023.
Further, a key material in road construction is bitumen, which has witnessed a consumption decline by over 5 per cent in 2024-25. This decline is primarily attributed to subdued road construction activity for the larger part of 2024-25. In 2023, the bitumen WPI stood at 125.5; however, on the back of subdued construction, the 12-month average dropped to 119.69 in 2024. Nevertheless, since November 2024, bitumen prices have begun to rise as overall construction activity picked up.
Outlook
The current prices of key construction materials highlight a period of relative stability. However, the full effect of recent US tariffs is yet to be seen. With the pick-up in the pace of construction, the prices of these key commodities have begun to gradually rise, but still remain largely below historic levels.
A decline in the prices of these key inputs is favourable for contractors; however, a prolonged decline due to cheaper imports, as in the case of steel, could adversely impact domestic producers. Hence, the government’s consideration of protective tariffs to safeguard domestic players is a step in the right direction.
Thus, to ensure profitability and viability across the infrastructure sectors, alternative long-term strategies are necessary. Going forward, the anticipated increase in the level of construction activity will require construction firms to adopt alternative materials and state-of-the-art technologies capable of delivering improved efficiencies and significant cost savings.
Bhavya Bhandari
