Rising Indian Steel Production Spells Concern for Australian Coal Miners

The Future of Metallurgical Coal Exports: India's Green Hydrogen Shift

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A recent report from IEEFA India and JMK Research and Analytics sheds light on the evolving landscape for Australian metallurgical coal miners eyeing the Indian market. While India has often been considered a promising export destination, there are important factors to consider.

India is indeed poised for substantial growth in steel demand, especially as Chinese demand plateaus. A significant portion of India's steel production expansion plans hinges on coal-powered blast furnaces. However, India's commitment to energy security and sustainability is steering it toward a greener path.

India's National Green Hydrogen Mission is striving to become a global leader in green hydrogen production, reducing its reliance on imported fossil fuels. According to the findings of IEEFA India and JMK Research, green hydrogen is projected to make up 12% of Indian steel production by 2030, while coal's share is expected to decrease from 92% in 2021 to 70%.

Fast-forward to 2050, and green hydrogen is anticipated to account for a substantial 42% of steel production, with coal at 29%. Scrap steel recycling is also expected to play a significant role at 16%. In a bold projection, the report suggests that by 2070, coal will no longer be used in Indian steel production.

However, it's important to note that overall steel production in India is set to soar over this period. According to IEEFA India and JMK Research, it will double to 227 million tonnes a year by 2030 and more than double again to 515 million tonnes a year by 2050. So, even as coal's role diminishes, it will still be a part of the equation, albeit to a lesser extent.

The trend toward green hydrogen is not limited to India alone. Globally, the steel industry is expected to embrace hydrogen-based processes, driven in part by the likely adoption of carbon border adjustment mechanisms (CBAM). The European Union's CBAM, for instance, could substantially increase the cost of steel imports, creating an added incentive for greener steel production.

In line with these shifts, some industry leaders are already adapting. Tata Steel, for instance, has shifted its focus from coal-intensive blast furnaces to green hydrogen-based steelmaking, with experiments underway in its Indian operations.

As China's steel production growth slows down, India is poised to become the key growth market for steel. China's metallurgical coal requirements are expected to decrease significantly, thanks in part to increased domestic coal production and efforts to recycle more scrap steel.

China Baowu, the world's largest steelmaker, is even considering divesting from Australian metallurgical coal, while exploring non-coal-based steelmaking options using Pilbara iron ore.

In light of these developments, Australian metallurgical coal exporters pinning their hopes on India's rising demand may need to reassess their expectations. According to the Australian government's Department of Industry, Science and Resources, both global trade in metallurgical coal and Australian exports are predicted to peak in 2026 before declining. India's growing demand may not be sufficient to offset declines elsewhere.

Adding to the challenges, India is diversifying its sources of metallurgical coal away from Australia. While Australia supplied 70% of India's metallurgical coal imports in FY2022, this has already dropped to 50% in FY2023. India is exploring imports from Russia and Mongolia and seeking partnerships with companies like Teck Resources in Canada.

Furthermore, India is aiming to increase its own metallurgical coal production significantly under its Mission Coking Coal, further reducing its dependence on imports.

In conclusion, while the metallurgical coal trade may not face the same immediate challenges as thermal coal, the accelerating transition to greener steelmaking technologies presents a formidable obstacle. Australian coal miners should prepare for a changing landscape and a reduced share of the evolving market.

Source : IEEFA