India’s Steel Ministry is looking to diversify its sourcing of coking coal, with Russia and Mongolia identified as key new markets, while plans are underway to establish the country’s own mechanism for determining coking coal prices and creating an index.

India, the world’s second-largest steelmaker, is the largest importer of coking coal. Australia accounts for 70 per cent of supplies.

Coking coal is a key feedstock material and accounts for 35-40 per cent of the steel-making costs. Nearly 58 million tonnes (mt) were imported in FY24, a 10-year high.

After discussions with industry on Monday, it has been decided that trial runs for two shipments of coking coal from Mongolia — around 3 lakh tonnes — will be considered over the next three to six months, senior officials taking part in the meetings told businessline. The Trans-Siberian – Mongolian railwaywill be tapped.

Under consideration is the “one nation, one buying” of coking coal, on the lines of Japan and China. The industry is yet to come on board.

“Some points relate to securing coking coal by tapping new geographies. Another one discussed was determining the right price for coking coal. Tapping Mongolia for supplies and having own price mechanism are being considered for immediate implementation,” a person present in the meeting said.

Three committees had previously been formed, and recommendations from all three were taken up.

Price Index

One point that came up was the need to have a “more realistic” price discovery mechanism in terms of coking coal.

India does not have its own price discovery mechanism, and two global indexes — Platts and Argus — are generally followed. These two have been criticised as “subjective.” Another criticism is that liquidity in the spot market is low 4 - 6 per cent, and this small quantity determines the price, especially in India.

Deals between certain coal suppliers and their sister trading companies, or trader-to-trader bids and offers, get registered in the global indexes, thereby impacting the discovery mechanism, including spot prices.

It was explained that, as a result, coking coal prices were in the $150-170/tonne range in 2021 and 2022, which shot up to $350/tonne range in 2023. In 2024, prices have been hovering in the $250 / tonne range. “We could look at a cost and freight approach in determining price instead of freepon-board price mechanisms,” an industry participant said.

Two market research firms have also expressed willingness to prepare such an index and submitted a “formula” for price discovery mechanisms in India, said sources.

New Coking Coal Sources

At the meeting, it was also decided that Mongolia would be tapped for coking coal. A team comprising officials from Ministry and industry representatives will soon visit the Central Asian nation to work out logistics and see if additional investments are required to be made there or not.

The catch: Mongolia is a land-locked nation and shares borders with China and Russia. And India will be seeking alternative routes to China, including tapping the Vladivostock-Chennai route, to secure coal. “Any route through China has to be avoided,” said a source.

Other Issues

The Ministry has suggested steel mills come together and explore having a common stockyard for coking coal. Stocks be replenished periodically, while commodity loans and borrowing mechanisms be explored between companies.

A consortium-based approach that will have members from the Ministry, PSUs, and private players is being explored to secure better price deals globally. However, industry participants have yet to accept this suggestion. “The requirements of companies are different. So a consortium-based approach may not be the best option,” an industry source said.