India's metallurgical coal imports may rise 5% in FY'24 on higher crude steel output

*Over 7% growth in hot metal production to push imports

*Met coke imports likely to rise 6% y-o-y on price dynamics

*BF-BOF steel capacity pipeline to drive met coal imports in short term

Imports of metallurgical coal by India, the world's second-largest steel producer, are expected to increase by around 5% y-o-y to over 72 million tonnes (mnt) in FY'24 from 69.1 mnt in FY'23, as per latest BigMint data. Imports are projected to edge up on higher production of crude steel through the BF-BOF route. Notably, imports constitute around 90% of India's met coal consumption.

Import trade patterns

Imports from Australia are likely to decrease to 39.4 mnt down from 41.6 mnt in FY'23, or around 5% y-o-y. Imports of prime met coal from Australia may decline to less than 55% of total imports by India compared to over 60% in the last fiscal.

Some Australian volumes have been knocked off by Russian cargoes, mainly due to discounts offered by Russian suppliers and surging PHCC prices in H2FY'24. Therefore, imports of Russian met coal are set to increase by nearly 35% y-o-y despite strong growth in H2 of last fiscal.

US and Canadian exports to India, on the other hand, are set to increase in the range of 17-18% y-o-y this fiscal principally due to easing hurdles in logistics networks-mainly ports and railways- mine ramp-ups in Canada, and India's efforts at import diversification, although prices from both geographies are perennially linked to the Australian PHCC index.

Why met coal imports may edge up only slightly?

Higher steel production: BigMint data reveal that the country's crude steel production is set to increase by around 13% to 142 mnt, while production through the met coal-consuming BF-BOF route is expected at 64 mnt in FY'24-higher by over 10% y-o-y. BF hot metal production is supposed to inch up over 7% y-o-y in FY'24, thereby supporting higher met coal imports. However, integrated Indian steelmakers are enhancing scrap steel use in an effort to minimise emissions.

Price factor: India's imports of prime met coal are directly linked to the need to ensure operational and cost efficiency in BF iron making. However, imports are sensitive to the price movements in the PHCC market, and steelmakers are making efforts to use various grades from different sources in an effort to mitigate the price impact. BF coal injection systems are a prime example of cost mitigation strategies through enhanced PCI usage, with the aim to cut down the coke rate.

As Australian premium coal prices increased by nearly 15% between August 2023 and February 2024, imports initially edged down through to December, but inched up slightly in January before falling in February. Seaborne prices were influenced by the rise in China's met coal sourcing (although imports from Australia were minimal) amid firm BF-BOF steel output in China. This happened during a period of constrained seaborne supplies from Australia due to weather- and logistics-related issues.

Higher coke imports: Met coke imports may increase by over 6% y-o-y to nearly 4 mnt from 3.69 mnt in FY'24, as per BigMint data. Imported coke prices have always been lower compared to domestic prices throughout this fiscal, and because global coking coal prices stayed elevated for long, Indian buyers raised coke purchases, which directly affected coking coal purchase volumes.

Outlook

Australian government sources indicate that India's metallurgical coal imports may rise to over 73 mnt by 2025, although BigMint expects the figure to be higher by 2-3 mnt till 2025. Production of relatively high-ash coking coal from CIL's ECL and CCL subsidiaries are unlikely to bridge the import gap, as technological interventions in coke-making are expected to catch up only after a certain time gap.

India's BF-BOF steelmaking capacity is rising rapidly, and met coal usage is only to going to edge up. BigMint data indicate that BF-BOF crude steel production capacity is likely to constitute over 55% of India's total steelmaking share by 2030, which is likely to be in the region of 210-220 mnt. Therefore, the outlook for met coal imports-especially PCI-looks really bright.