India’s Rising Capex To Further Increase Coal Import Bill

India’s focus on powering its economy by raising capital expenditure on sectors like infrastructure forms a major proportion of the country's steel demand. With that, the need for raw materials such as coking coal has also risen sharply, according to S&P Global Commodity Insights. It is now the largest seaborne coking coal buyer, a trend driven by the country’s growing steel capacity and consumption. India aims to raise its steel capacity to 300 million mt per year by 2030, up 71 per cent from 2023.

This surge in demand for coking coal has significant implications for India's economic and environmental landscape. As the nation scales up its steel production to meet infrastructure goals, it faces the challenge of securing a stable and cost-effective supply of this crucial raw material. Currently, India imports the majority of its coking coal, primarily from countries like Australia, which exposes it to global market fluctuations and geopolitical risks. 

To solve these vulnerabilities, India is exploring diversifying its import sources and increasing domestic production. However, observers said that this strategy must balance economic ambitions with environmental sustainability, given the high carbon footprint associated with coal mining and steel manufacturing.

“India will be a major demand driver for coking coal as the country aims for 300 million mt of crude steel capacity by 2030, or nearly double the 2022 levels however India might struggle to achieve its target production. We think Indian steel capacity could reach around 200 million mt by 2025 based on new projects from companies such as JSW Steel and Tata Steel. Then there will be a second tranche of capacity increases over the second half of this decade which could get overall capacity up to closer to 240 million mt ,” said Paul Bartholomew, senior analyst for metals and mining research at S&P Global Commodity Insights.

This is expected to further fuel India’s coking coal requirements. India also aims to boost domestic coking production and reduce imports. In 2021 the Indian government launched the “Mission Coking Coal” action plan to reduce the imports. Despite this plan, India’s coking coal imports are set to reach 100 million mt in 2030.

Notably, India has surpassed China and Japan as the world’s largest seaborne metallurgical coal importer some years back. Further, this boosted Australia's lead as the world's biggest producer of steelmaking ingredients in the coming years.

Australia's total coking coal exports are expected to increase by 14 per cent from 2023 levels to 171.9 million mt in 2025. The world's second-largest supplier Mongolia is forecast to boost exports only by 2.3 million mt, or 3 per cent, during that period while Russian exports are on the decline. India overtook China as the top coking coal buyer of both global and Australian supplies in 2018. Now India's decarbonization is set to supercharge its demand for metals.

"Coking coal demand will be strong in coming years because the world's decarbonization will need high-grade coking coal and Australia is the source for it, and the buyers are many," said Pranay Shukla, head of dry bulk freight and commodities research at S&P Global Commodity Insights.

Coking coal spot prices had skyrocketed to record levels above USD 600/mt FOB Australia in March 2022 amid volatility across global commodity markets following Russia's invasion of Ukraine. The changing market conditions look to have led steelmakers into a sense of urgency to ditch the blends of yesteryear and try out new coals, even as the Platts Premium Low Vol Hard Coking Coal assessment has fallen back to the USD 240/mt FOB Australia levels, S&P Global data showed.

Changes in procurement behaviours observed since then include an increasing openness to coals with low volatile matter that were previously deemed unsuitable for their effects on mills' coke oven wall pressure. Such coal grades are now being supplemented with high VM coals. 

Even as India's coal sources become more diversified, for each new ton of coal that is found, the desire for supply security dictates that it would likely be bought via a term contractual agreement rather than on the coking coal spot market.