Coking coal and transition dynamics

Global decarbonisation agenda is repurposing investment strategies of the steelmakers and coal miners.

Few coking coal mines are being developed as low-emission alternatives are coming up while evolving geo-political relations are forcing countries to look for newer sourcing bases.

These factors are at play as the Indian steel industry is trying to secure supplies to feed the expanded capacity which will come on stream in coming years.

“Raw material security has become a major issue. We are balancing out two things: growing steel production in line with the National Steel Policy and the focus on decarbonisation and growing sustainably. This dynamics is being managed at a time when the markets has become extremely volatile,” Amita Khurana, Group Chief of Raw Materials Procurement at Tata Steel said at the Chintan Shivir organised by the steel ministry to decide on raw material strategy for the sector.

While commodities have gone through super-cycles, reaching levels unheard of before, the growth aspirations of the country as well as the corporation is not getting matched with the availability of raw materials, Khurana said at the brain-storming session.

While coking coal supplies remain constrained, miners divesting their coking coal assets would create uncertainty in supply, believes Teck Resources Ltd (Teck), the second largest producer of high-quality steelmaking coal in the world.

Teck itself is divesting its prized coking coal assets to 2 top steelmakers in the world – POSCO of Korea and Nippon Steel of Japan.

As these assets turn captive mines from merchant mines, this would mean trouble for Indian steelmakers who are expected to import more coking coal in coming days.

“Future demand growth (for met coal to come) mainly from India and South East Asia. Demand is expected to increase 37 million tons by 2030, driven by India and SE Asia,” Teck Resources told investors while announcing the deal.

Energy transition-focused strategies, along with evolving demand for critical minerals, is changing the investment climate of the steel sector, says top management of Teck.

Future supply growth coming mainly from existing mines, but could be delayed by labour shortages, logistic issues and approvals, the company says predicting market shortage by 2025, unless additional production comes on.

Coking coal price volatility turning steelmakers nervous Coking coal, one of the key input raw materials that changes the dynamics of the steel industry, plunged in the last week of February with easing supply concerns.

Prices cooled off with debottlenecking of logistic constraints and improving climatic conditions in Australia.

Chinese steel manufacturers are cutting down on their production due to environmental concerns and Chinese steel maker Baowu Group is also reselling its Glencore low volume coal for $370/ton.

“The fact that the largest steel manufacturer in the world is reselling its coking coal in open market, coking coal is expected to run in surplus and prices are

Teck Resources

expected to correct further in coming weeks,” analysts with Motilal Oswal had said on February 27.

However, strong demand in Asia and Europe has led to a sharp rise in coking coal prices since then.

Persistent volatility in coking coal prices hampers Indian steel makers, which rely heavily on imported coking coal.

Usually steel manufacturers in India carry inventory of around two months, and hence any price hike would dent margins of steel manufacturers in Q1 of FY24.

“The increase in coking coal prices again is threatening to increase our cost of production in the current quarter. However, the simultaneous improvement in the steel prices is expected to cover up the same,” SAIL Finance Director Anil Tulsiani recently told analysts.

“Volatility in coal prices has probably been the most important factor in recent past which can make or mar the fortunes of the steel industry. It has been a cause for concern for all of us. While Tata Steel has a requirement of higher share of indigenous coal insulating the company to some extent while SAIL is having 40-45 percent of its costs coming from imported coal alone. So, volatility would remain a concern,” V Suresh, Executive Director, Coal Import Group, SAIL, said at the Chintan Shivir.