At a time when a surplus is forcing steel mills to close around the world, India’s debt-laden producers are ramping up to supply more of the metal than ever. Steel Authority of India Ltd., Tata Steel Ltd. and JSW Steel Ltd.—which all posted losses last year—are targeting record output in 2016 and want to almost triple capacity over the next decade. They expect demand in the world’s third-largest producing country to grow at about quadruple the current rate as Prime Minister Narendra Modi embarks on huge investments in new railroads, highways and ports, including $44 billion pledged for this year. Betting on a building boom isn’t without risk. Steel output is still exceeding stagnant demand. The government had to prop up slumping prices while restricting cheaper imports. And the country may not have enough power plants to supply the electricity an expanded industry would need. But investors are optimistic. Shares of JSW and Tata have surged as the Standard & Poor’s BSE India Metal Index heads toward its biggest annual gain since 2009. “It is an ambitious move and a strategic decision by steel companies to up their production,” Gunjan Aggarwal, an analyst at CRU Group, a commodity researcher, said by telephone from Mumbai. “They are trying to recover the ground they had lost in the last two years or so to imports.” Like big steel markets in the U.S. and Europe, India was inundated with cheap supplies from China, the biggest producer and exporter. While Indian demand has doubled in the past decade as the economy expanded, the country still produces more than it consumes. Record imports sent steel prices in January to a six-year low. The slump led to losses for JSW, SAIL and Tata, the largest producers, during the fiscal year ended March 31. To aid the local industry, the government in August extended its minimum-price limits on imports by two months and imposed anti-dumping tariffs on steel from big shippers including China, Japan and South Korea. Imports that reached an all-time high of 11.7 million metric tons in the fiscal year through March probably will drop to 7 million tons or 8 million tons this year, according to JSW Steel, which posted a record profit in the April-June quarter as it cut costs and raised output. At the same time, producers expect usage to “boom” as the economy continues to expand. Moody’s Investors Service predicts consumption will exceed growth in gross domestic product forecast at around 7.5 percent in 2016 and 2017. Driving that will be the government’s support for infrastructure and manufacturing, as well as increasing urbanization, the rating agency said. That’s generated optimism among investors. Since the end of February, shares of Tata Steel are up 45 percent, one of the top gainers on India’s benchmark S&P BSE Sensex Index. JSW Steel rallied 57 percent, and SAIL has gained 35 percent. Growth Outlook “The demand will grow,” which means more capacity is needed, even with a current surplus, Prakash Kumar Singh, Steel Authority of India’s chairman, said in an interview last month. “We shouldn’t look at two-year, five-year time spans, or we will be in a situation where a lot of steel will have to be imported from outside.” New Delhi-based Steel Authority will produce a record 15 million tons of crude steel this fiscal year and ramp up capacity to 50 million tons over the next decade, Singh said. Bandra East, Mumbai-based JSW Steel forecast output this year will reach an all-time high of 15.75 million tons, and the company aims to almost double capacity to 40 million tons by 2025. Fort, Mumbai-based Tata Steel expects production this year will get a boost of 1 million to 1.5 million tons from its new Kalinganagar plant in Odisha. So far, demand growth is falling short of the industry’s expectation of 5 percent to 6 percent in the fiscal year ending in March 2017. In the five months through August, consumption grew 1.3 percent from a year earlier to 33.7 million tons, steel ministry data show. Over the same period, production jumped 7.9 percent to 40.5 million tons, which helped boost inventories by 10 percent even as imports plunged by more than a third, the ministry said. Record Debt Rising output and the capacity enhancements come as India’s iron and steel producers rack up record-high debts of 3.14 trillion rupees ($47 billion). As long as companies can generate some positive earnings from the new production they will continue to raise output, according to Yi Zhu, an analyst at Bloomberg Intelligence. “Anti-dumping duties have minimized imports and therefore the steel companies’ valuations have improved,” CRU’s Aggarwal said. “But when these duties end, then that will be a different story.” It may take another two years or more before government spending on infrastructure helps boost demand, and the companies shouldn’t be relying on it, said Vishal Kulkarni, an analyst at S&P Global Ratings. Producers are adding capacity to make mostly flat products used in auto, consumer durables and housing, while government projects such as railways or construction use long steel, Kulkarni said by telephone from Singapore. “Our base case for the next two, three years does not envisage significant profitability improvement, and coupled with that, no major debt reduction is expected,” Kulkarni said.