A sharp spike in freight rates, supply disruptions in Australia and rising fuel costs linked to the West Asia crisis have converged to push up coking coal prices — driving a 6% rise in domestic steel prices and exposing India’s deep structural dependence on imported raw materials.

The stress point is coking coal, which forms the backbone of steelmaking. Producing one tonne of steel requires 0.7–0.8 tonne of coking coal, accounting for 35–45% of total production costs. With India importing around 90% of its metallurgical coal needs, even marginal global price shifts are quickly transmitted into domestic steel prices.

This vulnerability has intensified amid a global supply shock. Benchmark Australian coking coal prices surged to $252.5 per tonne in early February, an 18-month high and over 50% higher than March 2025 levels, after floods disrupted mining operations in Queensland — one of the world’s largest exporting hubs. Prices later corrected but remained elevated at $235–237 per tonne through April, reflecting sustained tightness. 

Cost escalation is not limited to raw material prices

The cost escalation is not limited to raw material prices. Freight rates have surged sharply, with shipping costs from Australia to India rising 63% to $27.25 per tonne in March from $16.76 in February, driven by higher marine fuel prices and supply chain disruptions. The West Asia crisis has compounded this trend by pushing up bunker fuel prices, increasing the landed cost of imports. 

“Freight economics are a key factor… the longer distance for US cargoes means higher freight costs, now exacerbated by the West Asia crisis and the impact on shipping fuel,” said Simon Nicholas, Lead Analyst, Global Steel, IEEFA.

These pressures have translated directly into domestic steel prices. Hot-rolled coil (HRC) prices have risen from ?53,700 per tonne in February to ?57,100 per tonne by late March, an increase of about ?3,400 per tonne (6%), as steelmakers passed on higher input costs.

Structural supply shock

The supply shock is also structural. Australia accounts for around 45% of global seaborne metallurgical coal exports, meaning disruptions in its output — whether from floods or climate-linked events have an outsized impact on global prices. Even diversification efforts offer limited relief, as global prices remain tightly linked. 

India’s strategy to diversify imports towards the US has gained traction, with the US share rising from 8% in FY2021 to about 15% in FY2025. However, the benefits are constrained by higher freight distances and limited export capacity. US shipments take 40–45 days to reach India compared to 20–25 days from Australia, increasing both cost and supply chain risk.

“Diversifying metallurgical coal imports… is unlikely to reduce risks,” the IEEFA note said, highlighting that global price linkages and freight disadvantages limit substitution benefits.

Looking ahead, the pressure is expected to intensify. India’s steel capacity is projected to reach 300 million tonnes per annum by 2030, with 64% of new capacity based on blast furnace technology, which depends heavily on imported coal. This expansion could push imports from around 94 million tonnes in 2026 to 149 million tonnes by 2035, further increasing exposure to global volatility.

At the same time, supply constraints are tightening globally. US metallurgical coal exports are projected to decline from 44 million tonnes in 2026 to 38 million tonnes by 2035, limiting their ability to offset Australian supply. 

“Even with diversified supply, India will remain exposed to global price volatility, supply disruptions, and climate-related risks,” said Saumya Nautiyal, Energy Finance Analyst, IEEFA.

The result is a widening gap between India’s steel ambitions and its raw material security. As geopolitical tensions, climate disruptions and freight volatility reshape global commodity flows, coking coal has emerged as the single biggest risk variable for India’s steel sector, directly linking global shocks to domestic price movements.

From Queensland’s flooded mines to rising fuel costs in West Asia, the chain reaction is now firmly embedded in India’s industrial economy—driving costs higher and reinforcing the urgency of reducing import dependence. 

Source: Financial Express 

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