India rethinks its coal future, plans to reduce import dependence by 2031

Overdependence on Australia for coking coal for its steel plants makes it vulnerable to supply chain disruptions and diminishes its capacity to negotiate on prices

A common preoccupation of producers of ferrous and non-ferrous metals in India, China and elsewhere is to ensure security of supply of raw materials over a long term. At least in two major minerals, namely iron ore and bauxite required by makers of steel and aluminium, respectively, India being adequately endowed has a distinct advantage over China, which is dependent on import for both. In the case of metallurgical coal, however, this is not the case for India. Its imports are set to rise year-on-year as more and more steel is to be made using the blast furnace and basic oxygen furnace (BF-BOF) route.

The country’s growing import dependence is because not only is the domestic supply of coking coal way short of steel mill requirements, the poor quality of local fuel because of a high degree of ash demands its blending with high quality imported stuff to make it BF friendly.

New Delhi by way of the 2017 steel policy has set a task to reduce coking coal import dependence from the present 85 per cent to 65 per cent by 2030-31. This is sought to be achieved by stepping up production of the fuel and getting it washed to rid it of much of its ash. The steel policy says BF-BOF route will have a 60 to 65 per cent share of the 2030-31 steel capacity of 300 million tonnes (mt) and production of 255 mt. On the basis of BF-BOF route’s requirement of 700 kg of coking coal for making one tonne of crude steel, the 2030-31 fuel requirements will be 161 mt.

There is nothing wrong with imports if a particular raw material, in India’s case it is coking coal, is not available locally in terms of volume and quality. For example, Japan runs its steel industry at the highest levels of efficiency and optimum value addition to primary steel notwithstanding its total dependence on raw materials imports. New Delhi has evolved a three-pronged strategy to progressively cut our coking coal import dependence by overseas asset acquisition, creating a sufficient number of modern washeries and exclusive allocation of indigenous met coal reserves for the steel sector. Coal India is expected to be ready with nine new washeries for metallurgical coal by the end of the next financial year.

While renewed attem-pts to step up domestic supplies both in terms of volume and quality will be of relief to steelmakers without captive mines, the country is reconciled to doing mostly with coal of foreign origin at all times. The concern is not about unavoidability of imports but, as additional steel secretary Rasika Chaube points out, about India’s continuing overdependence on a single source for coking coal. In the past three years, India stepped up imports of such coal from Canada and the US, albeit at a slow pace. As this is happening, the share of Australia in this country’s coking coal market fell to 71 per cent or 36.91 mt during 2018-19 from around 88 per cent three years ago. Irrespective of the rate at which India starts buying coal from countries other than Australia, imports will continue to rise in step with our growing steel production.

What is not to be wished away is the continuing overwhelming dependence on Australia for coal goes against commercial wisdom. First, production in the coal mining region of Australia is periodically disrupted by natural calamities as was witnessed earlier this year when deadly cyclone Trevor followed quickly by Veronica pummelled Queensland, which has as much as half the share of global seaborne supplies. Veronica, a category four storm, whipped up gusts of up to 263 km an hour uprooting rail lines connecting mines to ports in many places. This and earlier natural disasters such as cyclones Debbie and Yasie disrupting coal shipments upset production programmes of steelmakers here. The only recourse for our steel producers to avoid production disruption is to maintain coal stocks to last at least a month, says an industry official. But that kind of inventory leads to cost accretion.

Second, the overdependence on a single supplying nation compromises the buyer’s capacity to negotiate favourable terms and conditions of purchases. India is finally awakened to that reality. This is leading New Delhi to promote among steelmakers the idea of “risk diversification in metallurgical coal imports” by exploring countries other than Australia wherefrom coal can be procured at competitive costs on a sustainable basis. At a recent brainstorming session with the industry, Steel Minister Dharmendra Pradhan said the time was now “opportune for us to engage with Russia and Mongolia for the import of coking coal... An Indian technological team is to make survey of the quality of metallurgical coal in Russia and logistics supportive of transfer of the mineral to India using road, rail and sea. Then there is Mongolia, very rich in coal resources, where we are to build a railway line that will facilitate movement of the fuel. There is a lot of goodwill for us in Mongolia, which incidentally is the first country to recommend India’s permanent membership of the UN Security Council.”

To create excitement among Indian steelmakers, Pradhan told them that “almost all of Mongolia’s met coal is now exported to China. But that country is keen to reduce its dependence on a single buyer that is China and explore other markets. India figures prominently in that search.” Of China’s import of 64.2 mt of coking coal in 2018, Mongolia alone had a share of 43 per cent. Industry officials here familiar with Mongolian coal say the country will be able to realise better prices in the world market provided it gets its coal washed and blended before selling.

According to Bhaskar Chatterjee, director general of Indian Steel Association, in India’s search for long-term suppliers of coking coal in significant quantities, Russia cannot but figure prominently. If leading Russian coking coal producers such as Mechel and Kolmar want a share of the Indian market, some leading steelmakers here are giving indications that once they have satisfied themselves with “coal quality and supply logistics”, they will start using fuel from Russia in significant quantities. The point is not to be missed that with the market in the West shrinking where more and more steel is made by scrap recycling, Russia sees in India a potential major outlet for its coal.