"The domestic demand will remain buoyant," the Assocham Eco Pulse sectoral study on steel said, adding global demand would grow at 7-8 per cent per annum while production was set to increase by less than 4 per cent.

The study 'The Steel Surge' said international demand would continue to come from the growing economies of China, US and Europe.

"Domestic demand is rising on the back of development in infrastructure and growth in housing and construction sectors. A large number of high rise buildings in metros is having a demonstration effect on other cities as well," Assocham president Mahendra K Sanghi said while releasing the study.

There will be a significant demand for steel in India on account of the Commonwealth Games scheduled for 2010. Infrastructure, automotive, capital goods and construction sectors will be the major drivers for growth in domestic demand, according to the report.

Internationally, consumption is expected to grow in NIS (Newly Independent States) of the former Soviet Union as well as in OECD economies.

The Japanese economy is also expected to turn around after a prolonged recession, it added. Besides this, steel prices will continue to remain on the higher side owing to a rise in input costs, it said.

"The industry is expected to remain buoyant and prices are likely to remain on the upside in the foreseeable future with the increase in input costs. The global demand is also expected to be on the rise," Sanghi said.

Domestic prices of raw materials are linked to the landed cost of imports, which are also witnessing an upsurge. While increase in iron ore prices for 2005-06 is expected to lead to a rise of $16-24 per tonne of steel, rise in coking coal prices for the same year will result in a hike of $52-67 per tonne of steel, the study said.

Impacts for both these cases are excluding the effect of ocean freight, which could remain strong in the rising demanding market, it added.

While India has only 13-14 billion tonnes of iron ore reserves as compared to around 50 billion tonnes in Australia, Brazil and Russia, investments should be made to acquire iron ore and coal deposits abroad, the study said.

The government should review the national policy regarding iron ore exports. It should provide incentives to make ore available in the country, it added.

The study said with the supply crunch in raw materials, steel companies are being forced to scout for mines to bring down their manufacturing costs.

About 45-70 per cent of the total manufacturing costs for steel companies, depending on the level of their integration, is accounted for by the raw materials. This move of acquiring mines will reduce manufacturing costs by around 30-50 per cent depending on the kind of royalty and mining terms, it said.