The Steel Authority of India Ltd. (SAIL) on Tuesday announced India's steel demand will likely grow to only 6 per cent in 2012 as demand from the automobile and construction sector is restrained by higher interest rates.

Car sales in India fell 23.8 per cent in October, its biggest drop since December 2000, due to a series of interest rate increases imposed by the central bank and high vehicle costs.

"Right now demand is slightly sluggish. Let's hope it improves," Shuman Mukherjee, director commercial at SAIL, said during an industry conference.

The sluggish demand will keep steel prices under pressure, he added.

India owns 10 per cent of the world's coal reserves. However, local supplies can no longer keep up as the country builds more power plants to address the demands of rapid urbanization brought by a growing population, and as domestic projects get staled by environmental and land acquisition delays.

SAIL is the country's second largest iron ore producer. It imports 75 per cent of its coking coal requirements, mostly from Australia. Its coking coal requirements are projected to rise to 21 million tonnes in 2013 from 13.8 million tonnes in 2010.

SAIL aims to expand crude steel production capacity to 40 million tonnes by 2020 from the existing 12.84 million tonnes, while iron requirements are projected to grow 39 million tonnes in 2013 from 23.25 million tonnes in 2010, Mukherjee said.

The state-run company produced 24.2 million tonnes of the steel-making raw material in 2010/11.