Mumbai, Oct. 12 -- A growing number of small-scale steel producers in central India are finding it more profitable to sell electricity to the grid than make steel, as a surge in power demand has pushed up spot-market prices.

Selling power is helping these secondary steel producers tide over a crisis of their own. Surging coal prices and, to a lesser extent, higher iron ore pellet costs have made steel production unviable for some mills. Large primary steelmakers, by contrast, have not made similar cuts and continue to produce at capacity.

Micro, small and medium enterprises (MSMEs), which make up much of India's secondary steel sector, account for around 40-45% of the country's crude steel production. Production cuts by these players co...