India eyes Mongolian coking coal to end Australian reliance, battles logistical hurdles

India is exploring the feasibility of importing coking coal from Mongolia, aiming to diversify its sourcing for the crucial steelmaking ingredient despite facing logistical challenges, a Reuters report revealed. 

India, currently holding the position of the world's second-largest crude steel producer, faces a significant dependence on imports for coking coal. 

The nation relies on international markets for approximately 85% of its coking coal requirements.

This reliance is heavily concentrated, with more than half of the total imported volume being sourced from Australia, highlighting a notable supply chain vulnerability.

Demand

The domestic demand for steel, and consequently for coking coal, is projected to see a substantial climb in the coming years, driven by ambitious infrastructure projects and overall economic growth. 

This anticipated surge in demand is putting pressure on both the government and major steel producers to proactively address the long-term security of coking coal supply.

Recognising the strategic and economic necessity of diversifying its sourcing, the Indian government, in collaboration with the steel industry stakeholders, has initiated a concerted effort to identify and tap into new international suppliers. 

This strategy aims to mitigate the risks associated with over-reliance on a single major source like Australia, enhance the resilience of the domestic steel industry, and ensure sustainable growth in steel production to meet future national requirements. 

The search for alternative coking coal sources is a key component of India's broader strategy to secure raw material self-sufficiency and stabilise production costs in its crucial steel sector.

Opportunity and logistical hurdles

Mongolia, a geographically landlocked nation, faces inherent logistical challenges in its international trade, particularly for its crucial exports. 

To overcome this, the country relies on two primary trade corridors, both traversing the territories of its immediate and much larger neighbors. 

The first corridor, a longer route, extends northwards through the Russian Federation. 

The second and often more direct route passes southwards through the People's Republic of China. 

The utilisation and efficiency of these two routes are critical determinants of Mongolia's economic stability and its ability to access global markets for commodities like coal, copper, and other natural resources. 

The choice between the Russian and Chinese routes is often dictated by factors such as commodity type, destination market, transit tariffs, infrastructure quality, and the geopolitical relationship with each transit country at any given time. 

Transit risks and supply status

India views the China route as a long-term unviable option, according to the Reuters report.

This is due to Mongolia's strategic significance to Beijing as a coal source and the risk that Beijing could restrict access.

Following a fatal border clash in 2020 that led to a sustained military standoff, New Delhi and Beijing are now tentatively resuming economic relations.

Industry officials suggest that Mongolian coking coal could offer a high-grade option at a relatively lower cost.

However, a major challenge is the logistical difficulty of transporting the coal.

Trial shipments of Mongolian coal to India, which were anticipated earlier this year, have not yet been received. 

In May, reports claimed that the state-owned Steel Authority of India, a major steel producer, had requested one metric ton of coal.

Russia and the US each contribute around 15% of India's total coking coal imports, according to the report.