MC Explains: Why is Russian coking coal gaining popularity among Indian steelmakers?

In a bid to combat higher input costs, Indian companies are mulling raising the prices of various grades of steel to cushion their margins

India's coking coal imports rose by 7 percent in October 2023, according to the CoalMint data, as the robust domestic demand environment compelled steelmakers to import the steelmaking ingredient more.

But due to soaring Australian coking coal prices, end-users now favour imports from Russia. The cost-effectiveness of Russian coal has become a prominent factor influencing consumer preference, according to market research firm SteelMint.

Moneycontrol explains why Indian companies are preferring to buy Russian coking coal.

Why are Indian companies shifting away from Australian coking coal imports?

India imports coking coal from Australia, Russia, the United States, and Canada with Australia being one of the biggest suppliers. However, the recent spike in prices of the steel-making ingredient has raised production costs for the steelmakers. In October, the price of Australian prime hard coking coal rose by 17 percent to $364.7 per tonne as compared to $$310.9 per tonne in September.

In 2022 India sourced 70 percent of its 57 million tonne (MT) metallurgical coal imports from Australia. So far in 2023 this has dropped to 50 percent, according to a report from the Institute for Energy Economics and Financial Analysis (IEEF).

Shipments from Russia rose marginally month-over-month to 0.49 million tonne in October as against 0.48 million tonne in September.

Why is there a shortage of coking coal? 

The supply of the key steelmaking ingredient was disrupted earlier this year after some of the biggest mineral mines in north-west Queensland suspended production for weeks, some for months, after widespread floods entered sites and caused damage to infrastructure. This caused a shortage as Australia accounts for more than half of India's coking coal imports. The shortage intensified due to robust demand for the ingredient amid a spike in infrastructure projects.

Why is coking coal important?

Metallurgical coal, also called coking coal, is used to produce coke, the primary source of carbon used in steelmaking. Coke is an essential fuel and reactant in the blast furnace process for primary steelmaking. Any fluctuations in coking coal prices can directly impact steel prices.

What are the companies doing to mitigate higher coking coal costs?

In a bid to combat higher input costs, Indian companies are mulling raising the prices of various grades of steel to cushion their margins, media reports said last month. While companies are looking to source raw materials from countries other than Australia, some are planning to develop domestic mines to ensure smooth supply.

Last month, JSW Steel joint managing director and chief executive officer Jayant Acharya told Moneycontrol that the steelmaker is looking to procure the key raw material from various sources internationally, while also mulling the development of domestic mines.

Last week, the chairman of Steel Authority of India announced that the company intends to increase its procurement of coking coal from Russia due to its more affordable prices.