India seeks new coking coal frontiers in Russia and Mongolia, considering its own pricing mechanism, index creation

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India seeks new coking coal frontiers in Russia and Mongolia, considering its own pricing mechanism, index creation

Energy 03 Jul 2024 12:20 PM IST The Hindu BusinessLine

India's Steel Ministry is looking to diversify its coking coal sourcing, with Russia and Mongolia highlighted as key new markets. Plans are being developed to establish the country's own mechanism for setting coking coal prices and constructing an index.

India is the greatest coking coal importer and the world's second-largest steel producer. Australia accounts for about 70% of supplies. Coking coal is a key feedstock component responsible for 35–40% of the costs associated with producing steel. Imports reached a 10-year high of about 58 million tonnes (MT) in FY24.

Following talks with the industry, it has been determined that trial runs for two shipments of about 3 lakh tonnes of coking coal from Mongolia will be considered over the next three to six months. The Trans-Siberian-Mongolian railway will be tapped. Under consideration is the “one nation, one buying” of coking coal, similar to Japan and China. The industry has yet to join the initiative.

“Some points relate to securing coking coal by tapping new geographies. Another one discussed was determining the right price for coking coal. Tapping Mongolia for supplies and having own price mechanism are being considered for immediate implementation,” a person in the meeting said. Three committees had previously been formed, and recommendations from all three were taken up.

India does not have its own price discovery mechanism, and two global indexes — Platts and Argus — are generally followed. These two have been criticised as “subjective.” Another criticism is that liquidity in the spot market is low, 4 - 6%, and this small quantity determines the price, especially in India.

Deals between certain coal suppliers and their sister trading companies, or trader-to-trader bids and offers, get registered in the global indexes, thereby impacting the discovery mechanism, including spot prices.

At the meeting, it was also decided that Mongolia would be tapped for coking coal. A team comprising officials from the Ministry and industry representatives will soon visit the Central Asian nation to work out logistics and determine whether additional investments are required.

The Ministry has suggested steel mills come together and explore having a common stockyard for coking coal. Stocks should be replenished periodically, while commodity loans and company borrowing mechanisms should be explored. A consortium-based approach with members from the Ministry, PSUs, and private players is being explored to secure better price deals globally. However, industry participants have yet to accept this suggestion. “The requirements of companies are different. So a consortium-brd approach may not be the best option,” an industry source said.

Also Read : Mining Sector Registers Record Production in FY 2023-24 India hydropower output records steepest fall in nearly four decades

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India seeks new coking coal frontiers in Russia and Mongolia, considering its own pricing mechanism, index creation

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