India's steel ambitions face a coal reality check

Sydney: India and Australia recently released a joint statement on energy security during Narendra Modi's visit to Melbourne. The statement noted that, 'Australia and India reaffirm our commitment to working together to strengthen energy security, including maintaining a stable, secure and reliable supply of energy products, such as coal, diesel, other liquid fuels and natural gas.'

India has a large project pipeline of new blast furnaces under development, and much of the Australian coal imported by India is metallurgical (met) coal used for steelmaking.

However, one week before the statement, the Australian government had released its latest medium-term met coal export forecast, which showed that export volume expectations had been reduced yet again. This continues the pattern of the government continually revising down its met coal export forecasts throughout this decade.


The gov now forecasts that exports will grow for only 2 more years before dropping back down to 157 Mt by 2031. However, S&P Global forecasts that Australia's met coal exports will have dropped to 143 Mt by 2031, and will stay there until at least 2035.

Australia's met coal exports have been falling throughout this decade. Mining operators are facing higher costs that have led to financial difficulties for companies such as Pembroke Resources and Coronado. This is driven by factors including higher labour costs and rising strip ratios.

In June, Yancoal announced that its Ashton met coal mine in New South Wales will close in 2028 due to technical challenges and operational risks. The New South Wales government also made it clear in March that no new greenfield coal mines will be approved in the state.

Falling exports from Australia, which is by far the world's largest met coal exporter, raise a key question: where will India source more met coal if it continues to build new blast furnaces? Until the mid-2030s, the answer likely lies in reduced imports into China.

With steel demand in structural decline and more scrap steel available for recycling, China's met coal imports are expected to fall. This could allow India to import met coal that was previously destined for China. The latter's biggest source of met coal imports is Mongolia, whose exports appear landlocked and unavailable to India. As a result, India will more likely import from China's next biggest sources - Russia and, to a lesser extent, Canada. Australia exports relatively little met coal to China.

But what happens beyond 2035 is less clear. By then, Russian and Canadian volumes look likely to have been fully redirected to other markets. With S&P Global forecasting that volumes of all major met coal exporters to be flat or declining out to 2035, it isn't clear where India could import additional volumes from.

India is aware of this risk and responding by diversifying met coal import sources and targeting increased domestic supply.

But India also has an opportunity to manufacture steel without coal.

SAIL chairman-MD Ashok Kumar Panda recently noted that manufacturing new steel from scrap has 'a huge growth waiting for it', adding, 'going forward, scrap will become a raw material. It is not just waste; it is wealth.'

Tata Steel inaugurated its first Indian scrap steel-based electric arc furnace steel plant in March.

Scrap steel recycling will also be involved at JSW Steel's under-development Rayalaseema Steel Project in Andhra Pradesh. The plant will also use direct reduced iron (DRI) technology as an alternative to a met coal-consuming blast furnace.

DRI can run on green hydrogen. This allows India to improve the energy security of its steel sector by using green hydrogen domestically instead of exporting it.

China is already re-prioritising green hydrogen as a key energy security lever. With the conflict in West Asia escalating again, this latest global fossil fuel crisis should prompt India to strengthen the resilience of its steel sector to meet the demands of its growing economy.

The writer is lead analyst, global steel, Institute for Energy Economics and Financial Analysis (IEEFA)