India's rise as the world's top coking coal consumer and China's surging imports from Down Under are set to boost Australia's lead as the world's biggest producer of the steelmaking ingredient in the coming years.

Australia's total coking coal exports are expected to increase 14% from 2023 to 171.9 million metric tons in 2025, according to S&P Global Commodities at Sea, a division of S&P Global Commodity Insights. No. 2 supplier Mongolia is forecast to boost exports by only 2.3 MMt, or 3%, during that period, while Russian exports are declining.

India overtook China as the top coking coal buyer of both global and Australian supplies in 2018. Now India's decarbonization is set to supercharge its demand for metals.

Australian coking coal exports to China are bouncing back after Beijing lifted its unofficial ban in January 2023. Commodities at Sea forecast a quadrupling by 2025 from 2023 levels despite an expected 26% decline in China's overall metallurgical coal imports to 52.5 MMt during the same period.

Meanwhile, India's total coking coal imports are expected to rise to 83.9 MMt in 2025 from 73.8 MMt in 2023, according to Commodities at Sea.

"Coking coal demand will be strong in coming years because the world's decarbonization will need high-grade coking coal and Australia is the source for it, and the buyers are many," Pranay Shukla, head of dry bulk freight and commodities research at Commodity Insights, said in an interview.

"In China, 85% of its steel production still uses blast furnaces, which use coking coal, and China can't just switch to electric arc furnaces within a couple of years. It will take a long time," Shukla said. "Even the steel mills in Vietnam want Australia's high-quality coal, as do those in Europe despite players there working towards using hydrogen as a replacement for metallurgical coal in the longer-term."

India on the move

India will be a major demand driver for coking coal as the country aims for 300 MMt/y of crude steel production by 2030, or nearly double 2022 levels, said Paul Bartholomew, senior analyst for metals and mining research at Commodity Insights.

However, Bartholomew said India might struggle to achieve its target production. "We think Indian steel capacity could reach around 200 MMt/y by 2025 based on new projects from companies such as JSW Steel Ltd. and Tata Steel Ltd. Then there will be a second tranche of capacity increases over the second half of this decade, which could get overall capacity up to closer to 240 MMt/y."

India is still "almost completely reliant on imported coking coal and will continue to do so, and much of that will come from Australia, even though there are plans to develop more domestic coking coal. That's always been a challenge because some of its key coking coal regions have populations living in them," Bartholomew said.

BHP Group Ltd. CEO Mike Henry said in a Feb. 20 media call that India is "a country that's on the move, and you certainly see that coming through in the demand for coking coal ... with India being our largest market now for metallurgical coal."

Diversifying beyond China

Australia is producing less coking coal than it did in 2018 because of a lack of investment during low price periods, higher strip ratios, and some logistical and labor challenges, Bartholomew said.

Yet exports are stronger this year than in 2022 when a La Niña weather event impacted coal operations in Queensland over a two- to three-year period.

Following China's unofficial ban on coal from Down Under, Australia found other customers to replace the lack of Chinese buyers in 2021 and 2022 by selling more to mature existing customers, such as Japan, South Korea and India, the analyst said.

"Australia was also taking a greater market share of the Atlantic markets, including Europe — markets which would have typically taken US or Canadian coal," Bartholomew said.

Upside price risk

Also working in Australia's favor is the fact that metallurgical coal is "fairly tight, and prices are not coming below the $200/t mark," Shukla said, referring to the Platts-assessed premium hard coking coal Australian FOB price.

Supply disruptions therefore loom as "the major upside risk" to coking coal pricing, according to Vivek Dhar, mining and energy commodity research director at the Commonwealth Bank of Australia.

"Modest disruptions risk pushing coking coal prices to $250/t to $30/t, while more severe disruptions can see prices track above $300/t like we have seen over the last six months," Dhar said in an April 5 note. A small drop in China's coking coal supply can also "materially boost imports," given it supplies over 90% of its own needs, Dhar said.

A return to La Nina weather conditions later this year would "worsen the wet season disruptions for Queensland," sending coking coal prices higher in the December 2024 and March 2025 quarters, Citi Research said in an April 15 note.

Platts assessed premium hard coking coal Australian FOB is an offering of S&P Global Commodity Insights. S&P Global Commodity Insights is a division of S&P Global Inc.