India's steel sector confronts growing coal risks

Executive summary

India has been working to address the energy security risks facing its growing steel sector, but further action is needed for the country to stay ahead of emerging challenges.

As the world’s key market for steel demand growth, India is seeing a major expansion of capacity within the sector, with plans largely centred on the blast furnace-basic oxygen furnace (BF-BOF) technology that requires metallurgical (met) coal. The country is currently dependent on imports for around 90% of its met coal needs.

Australia is the world’s largest met coal exporter, accounting for almost half of global exports. However, concerns over the reliability of its future supply have persisted for years now. The Australian met coal sector is characterised by numerous risks that could result in future supply disappointing Indian steelmakers. Keeping this in mind, the Indian government and steelmakers have been taking effective steps to reduce dependence on Australian met coal. The risks, though, are rising and India will need to take additional measures to avoid locking in steelmaking technology permanently weighed down by long-term energy security concerns.

The risks faced by Indian steelmakers include:

• Over-optimistic forecasting despite declining exports: The Australian government has a clear track record of over-estimating its met coal export forecasts, having revised its projections downward each year for the past six years with actual exports in decline. Given this gap, India should not rely on Australian government forecasts of increased met coal exports.
   
• Slowing mine development: The recent wave of acquisition activity in the Australian met coal market highlights miners’ preference to acquire existing operations rather than navigate the long and increasingly difficult process of opening new mine capacities. The International Energy Agency (IEA) has noted that the project pipeline of new coal mines in Australia has shrunk and that, “progress in announced new projects has been very slow”.

• Growing methane risks: The mounting challenge of methane emissions is likely to make opening new met coal mine capacity even harder in the long term. Methane emissions produced by Australian met coal mines, which add significantly to total steelmaking emissions, are receiving growing attention from stakeholders, including governments and civil society. It seems highly likely that Australian coal mine methane emissions are significantly under-reported. 

  Australia joined the Global Methane Pledge in 2022, committing to reducing the nation’s methane emissions by 30% below 2020 levels by 2030. With the true scale of met coal mine methane emissions starting to become apparent, opening new mine capacity may become difficult if the Australian government is serious about the pledge. In September 2025, the Australian government announced its interim target to reduce emissions by 62%-70% below 2005 levels by 2035 and published sector plans for reaching this target, including for the resources sector. India has a 2070 net zero emissions target but is reliant on met coal imports from a country that has a 2050 target.

• No carbon capture progress: Carbon capture and storage (CCS) for steelmaking does nothing to address the methane emissions from met coal mining. Moreover, its poor track record shows it cannot meaningfully address steelmaking’s carbon emissions either. There is still not a single commercial-scale CCS facility for met coal-based steelmaking anywhere in the world. There are also significant doubts over the availability of suitable CO2 storage locations globally, including in India. With alternative steelmaking technologies, that don’t use met coal, becoming more prominent, the realisation that CCS cannot meaningfully decarbonise blast furnaces will lead banks and other financiers to move away from financing met coal projects.
   
• Finance risks: Australian banks have already begun denying finance for new (greenfield) met coal mines. As lower-carbon steelmaking technologies become more accessible, policies will tighten across financial institutions, echoing the withdrawal of support seen in the thermal coal sector. This will further increase the risk of future met coal supply from Australia disappointing the Indian steel sector.
   
• Legal and regulatory risks: Although Australian governments are still currently approving coal mine expansions, it is not a foregone conclusion that this will continue at the same pace going forward. Instances of Australian coal mines not getting planning approval or having their approval successfully challenged in court are rising. Coal mine extensions are being rejected due to concerns about greenhouse gas (GHG) emissions. Such concerns will likely grow as the nation’s 2050 net zero emissions target gets nearer. There is a significant and rising risk that legal and regulatory barriers will limit future met coal supply to India.
   
• Rising mining costs: Queensland, Australia’s largest met coal producing state and the world’s leading seaborne exporter, is seeing the cost of mining rise, eroding the financial case for investment in more met coal capacity, with unit costs having risen as much as 50% since 2018. The cheaply available coal has been mined already and mining operations are having to dig deeper to maintain production, incurring higher costs. Labour costs have also been rising. In addition, there are emerging costs that are likely to continue putting pressure on miners’ cost base, including those related to climate change impacts and emissions management.
   
• Structural price rises in the longer term: If India continues to build blast furnace capacity leading to significantly higher met coal demand, any potential future shortfall in Australian met coal production arising from the risks highlighted above could lead to higher prices. This may help Australian coal miners overcome their increasingly high cost base but would transfer the impact of higher costs onto Indian steelmakers. Australian met coal miners are highlighting their expectations of higher longer-term prices to their investors. In a high price environment, it might be expected that new supply would open up in response, bringing the market into balance and bringing prices down towards historical levels. However, in a world increasingly affected by climate impacts, legal, regulatory and financing hurdles are likely to grow ever higher, meaning that any price rises could become structural.
   
• Climate risks: India also faces met coal supply and price-related implications linked to climate change. Queensland is prone to intense rainfall and flooding events which impact mining and coal rail logistics. The intensity of rainfall and flooding events in Australia is forecast to increase, and with it the risk of more supply interruptions and price spikes.

Recommendations

The growing energy security risks faced by India’s steel sector are a long-term problem that will require long-term solutions. Investment by Indian steelmakers in mines overseas is unlikely to be that solution given the threat of all the risks highlighted above. However, the great majority of India’s domestic met coal does not meet the quality requirements of steelmakers due to high ash content and sulphur levels. With the global steel sector technology transitioning away from coal, and India needing to protect its steel sector from future supply and cost shocks, the country must accelerate the transition to alternative steelmaking technologies that don’t rely on met coal.

• One clear alternative gaining traction is scrap steel recycling through electric arc furnaces (EAFs). Scrap steel has the potential to be a strategic resource that can reduce India’s requirement for import of both met coal and iron ore in the long-term. While larger volumes of scrap steel won’t become available for some time, its benefits in terms of energy and materials security are such that India should prioritise scrap collection, logistics and processing now in order to put itself in the best possible position to gain from increasing volumes in the future.
   
• Domestically produced green hydrogen, used in steelmaking as an alternative to met coal, also represents a major energy security opportunity for India which is among the most promising locations to produce cost-competitive green hydrogen. Future production should prioritise domestic use in sectors such as steel over export. Indian steelmakers have begun to turn to green hydrogen, but this option should become an even greater priority for India.

Ultimately, these shifts represent the next stage of India’s energy and industrial transition. They would not only enhance India’s energy security but also strengthen its competitiveness in global low-carbon steel markets.