India’s metallurgical coal demand through 2020 on the rise

3-Sept-2018

Platts reported that despite some macro uncertainties post India’s election in 2019, India’s met coal demand will continue to increase to meet the needs of a fast-growing steel sector. Recent consolidation in India’s steel sector, and greater international participation, should help ensure the industry is on a surer footing going into its next growth phase. Platts forecasts India’s crude steel production will trend towards 125 million tonnes by 2020, a 21% increase from 2017. Pig iron output could increase to 81 million tonnes, from 66 million tonnes reported for 2017. It said “Based on the rule of thumb for India that 1 tonnes of pig iron requires 1.6 tonnes of iron ore and 0.85 tonnes of coking coal, we estimate iron ore and coking coal demand at 130 million tonnes and 70 million tonnes, respectively, by 2020. This would mark a 25% increase, or an increment of 5 million tonnes a year, in metallurgical demand from 2017 levels. Monthly metallurgical coal demand is therefore forecast to trend higher towards 6 million tonnes at the end of 2020.”

It said “One of the key market implications could be the mining majors potentially benefiting from India’s growing appetite for metallurgical coal. Since the start of 2017, major Indian steelmakers have been seeking to secure long-term contracts with miners, ensuring reliable supply. This comes at a time when large steelmakers are looking to boost efficiencies and lift capacity utilization rates after acquiring distressed steel assets that were operating well below capacity.”

It added “Indian steelmakers are typically favor importing high fluidity and high vitrinite type coking coals. Fluidity is measured by the difference between melting and solidifying temperatures of coal. High fluidity gives higher “bendability” of coals and optimizes the coke input into a blast furnace. Vitrinite indicates the heat tolerance of each coal, reflecting better performance in the blast furnace when higher. With the estimated ramp-up of India’s met coal demand by 5 million mt/year through 2020, implied demand for the preferred likes of Premium Mid-Vol such as BHP-Mitsubishi Alliance’s (BMA) Goonyella, Peak Downs North and semi-hard coals like Kestrel, in eastern Australia’s Queensland, will grow for the foreseeable future.”

Besides relying on Australian coals, steelmakers in India were understood to be diversifying their coal blending by opting for other origin coals, including US material. They have also sought cheaper alternatives such as pulverized coal injection (PCI) and semi-soft. This was particularly the case when hard coking coal prices rose to $300/mt FOB Australia in recent years due to supply constraints in China and Australia. Indian mills are particularly susceptible to price spikes and in certain cases were forced to mothball some blast furnace operations until steel margins improved.

Source: PLATTS