MET COAL SERIES: India cautiously takes on greater say in coking coal spot market

This five-part story series examines the coking coal market from a few angles. This first part focuses on India's rising importance in spot markets. The second part visualizes the nation's meteoric rise in met coal demand, the third examines Australia's continued dominance as an exporter, the fourth examines Chinese demand, while the fifth explores how US exports hinge on the growth of Asia's blast furnace capacity.

India has continued to cement its position after emerging as the top buyer of seaborne coking coal two years ago, thanks to record crude steel production, even as imports dipped slightly to 56.96 million mt in 2022 and then 56.5 million mt last year.

In terms of the raw material's pricing, India as a destination for spot cargoes has grown, with 32% of all premium hard coking coal deals published in 2023 by Platts, part of S&P Global Commodity Insights, bound for the country, up from 25% in 2022. This included deals done on both an FOB Australia and a CFR India basis.

The change of guard in coking coal trade flows has seen China renounce its prior role as the top marginal buyer of spot cargoes -- doubling down through its January imposition of duties on imports from various origins. However, India's assuming of the pole position has decidedly been more tentative.

Indian end-users of premium hard coking coals have actively sought alternative supplies to fuel expansion ambitions of reaching 300 million mt of crude steel capacity by 2030. This can be seen in how India's imports from Australia have been on a decline since 2022, replaced by a greater proportion of coals from other origins such as the US, Russia and Canada.

Coking coal spot prices had skyrocketed to record levels above $600/mt FOB Australia in March 2022 amid volatility across global commodity markets following Russia's invasion of Ukraine. The changing market conditions look to have led steelmakers into a sense of urgency to ditch the blends of yesteryear and try out new coals, even as the Platts Premium Low Vol Hard Coking Coal assessment has fallen back to the $240/mt FOB Australia levels, S&P Global data showed.

Changes in procurement behaviors observed since then include an increasing openness to coals with low volatile matter that were previously deemed unsuitable for their effects on mills' coke oven wall pressure. Such coal grades are now being supplemented with high VM coals.

End-users have become more experimental in terms of coal purchasing and blending, where the coke oven technical manager is more amenable to the constraints of the procurement manager and considering alternatives, according to industry sources.

"We need to invest in the development of testing facilities to blend and test the best variety of coals for use in steelmaking," Naveen Jindal, chairman of Jindal Steel and Power, said at the Indian Steel Association's inaugural Coking Coal Summit in Delhi last year, summing up the new outlook among the country's major steelmakers.

Even as India's coal sources become more diversified, for each new ton of coal that is found, the desire for supply security dictates that it would likely be bought via a term contractual agreement rather than on the coking coal spot market.

Calls for CFR India price marker

The evolving trade flows have prompted growing market interest in the location basis used in contractual pricing mechanisms, with term contracts for hard coking coal typically indexed to Australia-export spot price assessments published by Platts and its competitors. To better reflect the current realities of India's coking coal import landscape, some Indian steelmakers have called for the creation of a standalone CFR India price marker that would represent an any-origin spot price for imported cargoes.

There needs to be an India-centric assessment as the country takes in coking coals of all origins, said an India-based source at an international trader, adding that spot price assessments should evolve along with the coking coal market.

Platts opened a consultation March 15 to invite market feedback on its CFR India coking coal price assessments. Preliminary feedback showed interest in a CFR India assessment for premium hard coking coals that would be assessed separately from the Platts existing net forward calculation from FOB Australia. The consultation was subsequently extended to May 17 to allow input from more key industry stakeholders.

Feedback from the trading community has been mixed, with a number of traders and producers raising concerns that a CFR India marker could dilute existing spot liquidity on an FOB Australia basis, citing limited spot trades done on a fixed price basis for India imports.

Supply in focus

Pricing mechanisms aside, supply security and diversity look set to remain a priority for India and other large importers.

The steel and coking coal industries got a temporary sigh of relief due to recent pushbacks against environmental, social and governance regulations, although it would be a long shot to expect greenfield mining projects to be put on the fast track for approvals any time soon.

Signs of improved supply from Australia and other sources lend hope for a more active and vibrant spot market.

In April, Platts observed 22 deals for Australian premium hard coking coals amounting to 1.04 million mt, compared with seven in March making up 315,000 mt and 10 in April 2023 totaling 480,000 mt.

There could be support for coking coal prices on an FOB Australia and CFR China basis in the second half of 2024 due to Indian mills restocking and a resumption in Chinese steel consumption after the summer months, with the recent price volatility likely to be tempered if supply and the availability of spot cargoes remain robust, according to S&P Global analysts.