Indian steel mills face margin squeeze as global coking coal prices rise
NEW DELHI: Indian steel mills are facing mounting pressure on margins as higher coking coal prices, driven by supply disruptions in Australia and China and the Iran war, raise steelmaking costs, executives and analysts said. India, the world’s biggest crude steel producer after China, meets 95% of its coking coal needs through imports, with at least half shipped from Australia. Coking coal…
Indian steel mills are grappling with shrinking profit margins as soaring coking coal prices take their toll, according to executives and analysts. India, the world's second-largest steel producer after China, relies heavily on imports for coking coal, fulfilling 95% of its needs, with a significant portion sourced from Australia.
Coking coal constitutes roughly 40% of steel production costs. As margins tighten, investment may be curtailed and capacity expansion delayed due to increased spending to meet domestic demand fueled by robust economic growth and infrastructure projects. Premium hard coking coal prices surged 25% year-on-year, averaging $236 per metric ton freight on board (FOB) in the first seven months of 2026, according to Banmeet Khurmi, a lead market analyst at consultancy CRU in Sydney.
Indian steel producers, particularly small mills, are facing the prospect of production cuts due to LNG shortages stemming from the Iran war. Prices have been elevated this year, driven by supply disruptions in Australia, slower than anticipated mine expansions, price support from the Middle East conflict, and a recent major accident in Shanxi, China.
Analysts project high costs to persist into the second half of the year, in part due to supply shortages following the Shanxi coal mine disaster. For blast furnace-based steelmakers, each $10 increase in coking coal prices translates to an additional $7 to $9 per metric ton in steelmaking costs, as per an executive from a major steel mill, speaking on condition of anonymity.
Higher coking coal prices have squeezed margins, with little room to raise steel prices due to fierce competition from cost-effective Chinese steel, despite increased shipments from China despite import tariffs on some grades. Import demand for coking coal is projected to climb between 2 million and 3 million tons in 2026-27, up from 64 million tons the previous year, as per commodities consultancy BigMint.
This surge in demand is accompanied by elevated transport costs, partly due to disruptions arising from the US-Iran war. "Trade flows have tightened with high demand from India and higher diesel, freight, and insurance costs," said Hui Ting Sim, vice president at Moody's Ratings. While Australia is anticipated to continue supplying at least half of India's coking coal requirements, imports from Russia, Mozambique, and the United States are also poised to increase.
Discounts on Russian coal, which accounted for 24% of India's coking coal imports in past years, have waned over the last two years, Khurmi noted. "In the longer term, we foresee Mozambique overtaking the United States and Russia as the second-largest exporter of coking coal to India after Australia," Brooks said. He added that Indian companies like state-run Steel Authority of India and JSW Steel are increasingly turning to Mozambique for supplies.
India has been actively seeking to diversify its coking coal imports and explore access to Mongolia; however, experts caution that this remains challenging due to logistical hurdles.
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