India’s steel future depends on breaking its costly coal habit

Berkeley, California: India's ambition to become a developed economy by 2047 rests in part on a dramatic expansion of steelmaking. Draft National Steel Policy Vision 2047, released on Oct 10, envisages nearly tripling steelmaking capacity, with the coal-based blast-furnace route accounting for 55% of steel production. This pathway could lock in ~$1.5 tn in additional coking coal imports over the plants' lifetime.

Coking coal can account for ~40% of cost of producing a tonne of steel, leaving steelmakers vulnerable to rising international coal prices and disruptions to freight. That exposure creates a direct risk for downstream industries that use steel.

India imports 92% of coking coal its steelmakers need, at prices set in dollars. Blast furnaces need this coal to turn iron ore into iron. The policy projects annual demand more than tripling from 72 mn tonnes today to 236 mn tonnes by 2047. The coal ministry's roadmap would increase domestic coking coal supply from about 6 mn tonnes today to 23 mn tonnes by 2030.


If supply remains at that level thereafter, India will still need to import about 213 mn tonnes annually by 2047. At the $236-a-tonne benchmark average for Jan-July 2026, that represents about $50 bn a year before freight. Every $10 increase in coal price would add another $2.1 bn to the annual bill.

Competition from inexpensive Chinese steel limits Indian mills' ability to pass on higher costs, squeezing their margins and potentially reducing the money available for expansion. Implications extend beyond steelworks. Construction and infrastructure consume 67% of India's steel. Volatile steel prices can raise the cost of public projects and housing.

Smaller manufacturers buying steel for machinery and components also need predictable input costs to price orders and invest. India's steel expansion should, therefore, reduce dependence on imported coal and make production costs more predictable.

Hydrogen made with domestic RE can replace coking coal in turning iron ore into iron. Steelmakers can contract RE at fixed rupee prices for 25 yrs, inflation-proofing a major energy input. In March, BPCL announced a 25-yr green hydrogen (GH) supply agreement for Numaligarh Refinery in Assam at ₹279 a kg. At ₹96 to the dollar, that's about $2.90 a kg. Steel projects will need their own supply terms. But the award gives them a domestic benchmark.

If a hydrogen contract holds its rupee price fixed and rupee depreciates by 4% annually, ₹279 would equal about $2 a kg after 10 yrs. The Indian buyer's rupee payment remains unchanged. Dollar-priced coal would, meanwhile, cost about 48% more in rupees, even if its international price stayed flat.

Our research compares the cost of building and operating new hydrogen-based and blast-furnace steel plants over their lifetimes. In this comparison, it was assumed that coal prices and rupee cost of a dollar would rise at only half their average pace over the past two decades. Even with those slower increases, new hydrogen-based plants can produce steel more cheaply than new blast furnaces by 2030.

The export opportunity strengthens this investment case. Steel made with GH would face lower carbon costs under Europe's CBAM than coal-based steel. With substantial capacity still to be built, India can choose GH for new plants, helping its steelmakers and manufacturers they supply compete against countries with large existing coal-based fleets.

GoI should announce that from 2032, at least 5% of steel used in new, centrally-funded infrastructure be made using GH. Competitive auctions should award purchase contracts well before then, giving steelmakers time to build. The share can rise after a review of supply and costs without any subsidy support.

India should also use the EU-India trade opening to make green steel plants cheaper to build and finance. The EU imported almost 40 mn tonnes of steel in 2025. Long-term purchase contracts with European buyers would help Indian green steel plants secure finance to supply this market.

GoI should negotiate long-term equipment loans backed by European export-credit agencies to lower borrowing costs. It should also establish green steel SEZs with streamlined land and environmental clearances, and set firm deadlines for approvals.

The final policy can help India replace part of its $1.5 tn import exposure with demand for domestic power and hydrogen.