Indian steel mills are facing mounting pressure on margins as higher coking coal prices — driven by supply disruptions in Australia and China and the Iran war — raise steelmaking costs, according to Reuters. Premium hard coking coal prices jumped 25% from last year to average $236 per metric tonne FOB Australia in the first seven months of 2026, said Banmeet Khurmi, lead of metallurgical coal and coke market service at consultancy CRU in Sydney. India, the world's biggest crude steel producer after China, meets 95% of its coking coal needs through imports, with at least half shipped from Australia; coking coal accounts for nearly 40% of steel production costs.
Supply disruptions drive prices higher
Explaining the rally, Khurmi pointed to converging supply-side shocks:
Prices have been higher this year due to supply disruptions in Australia, slower-than-expected ramp-up at new mines, price support from the conflict in the Middle East and, more recently, a large accident in Shanxi, China.
Costs are likely to remain high in the second half of the year, partly due to the loss of supply following the Shanxi coal mine disaster, said Freddie Brooks, commodities analyst at BMI, a unit of Fitch Solutions.
Steel cost curve under pressure
For blast furnace-based steelmakers, every $10 a ton increase in coking coal prices adds approximately $7 to $9 per metric tonne to steelmaking costs, said an executive at a large steel mill, who was not authorised to speak to the media. Higher coking coal prices have squeezed margins, three other executives at leading steelmakers said, with little headroom to raise steel prices, given competition from cheap Chinese steel. Shipments from China have increased despite import tariffs on some grades.
Squeezed margins could impede investment and delay capacity expansion as Indian steelmakers step up spending to meet buoyant domestic demand driven by infrastructure and strong economic growth, Reuters reported.
Import demand keeps rising
Coking coal imports are expected to rise by between 2 million and 3 million tonnes in 2026-27 from 64 million tonnes a year earlier, commodities consultancy BigMint said. With the higher demand for imports comes higher transport costs, partly due to disruptions from the US-Iran war. "Trade flows have tightened with high demand from India and higher diesel, freight and insurance costs," said Hui Ting Sim, vice president at Moody's Ratings.
| Metric | Value | Source |
|---|---|---|
| Average premium hard coking coal price, Jan-Jul 2026 (FOB Australia) | $236/mt | CRU |
| Year-on-year price change | +25% | CRU |
| India's coking coal import dependence | 95% of needs | Reuters |
| Share of imports from Australia | at least half | Reuters |
| Coking coal share of steel production cost | nearly 40% | Reuters |
| Cost impact per $10/mt coal price rise | $7–$9/mt steel | Steel mill executive |
| Coking coal imports, 2025-26 | 64 million tonnes | BigMint |
| Expected imports, 2026-27 | 66–67 million tonnes | BigMint |
Diversification and outlook
Australia is expected to continue meeting at least half of India's coking coal needs, although imports from Russia, Mozambique and the United States are also set to rise. Discounts on Russian coal, which accounted for 24% of India's coking coal imports in recent years, have diminished over the past two years, Khurmi said. "Over the longer term, we expect Mozambique to overtake the United States and Russia as the second largest exporter of coking coal to India after Australia," Brooks said, adding that Indian companies such as state-run Steel Authority of India and JSW Steel were turning to Mozambique for supplies.
India has been seeking to diversify its coking coal imports and gain access to Mongolia, although experts say this remains difficult because of logistical challenges. With the Shanxi supply loss still weighing on the market and trade flows tightening on high Indian demand and elevated freight and insurance costs, the second half of 2026 is set to keep procurement teams under pressure as they contend with a cost curve that is unlikely to bend anytime soon.
Sources:
