Indian steelmakers are grappling with a sharp rise in coking coal prices this year that is squeezing their margins and delaying capacity expansion across the steelmaking industry, analysts and industry executives told Reuters.

India depends on imports for as much as 95% of its coking coal, or metallurgical coal, demand. Metallurgical coal, also known as met coal, is one of the essential raw materials in the steelmaking process; it contains more carbon, and less ash and moisture, than thermal coal, which is used for electricity generation. Because the country relies on imports for nearly all of its coking coal needs, this year's supply disruptions and surging prices have placed significant pressure on Indian steel producers. The exposure matters at scale: India is the world's second-largest crude steel producer after China, so swings in seaborne met coal prices feed directly into the input costs of a core domestic industry.

The price of premium coking coal on a freight-on-board (FOB) basis in Australia surged by 25% in the first seven months of this year compared with the same period last year, driven by a series of supply disruptions, Banmeet Khurmi, metallurgical coal and coke market service lead at Sydney-based consultancy CRU, told Reuters.

The increase reflects a slower ramp-up of new mines, higher prices stemming from the Iran war, supply disruptions at key producer Australia — a long-standing major supplier to the Indian market — and the deadly coal mine explosion in China's Shanxi province that killed more than 80 people, the worst Chinese mining accident in years (The Coal Hub).

"Steelmaking coal prices strengthened from CY2025 levels as strong Indian import demand and supply disruptions tightened an otherwise balanced seaborne market," mining giant BHP said in its Economic and Commodity Outlook this week.

India has expanded its steelmaking capacity to about 220 Mtpa in the 2026 financial year, up 10% year-on-year, and is targeting 500 Mtpa by 2047, much of which will be blast furnace based, according to BHP. The build-out extends the trajectory set by India's National Steel Policy, which targets 300 Mtpa of capacity by 2030, and is underpinned by rising domestic demand from construction and infrastructure projects. Because blast furnaces run on coking coal, the expansion keeps India tied to seaborne supplies of the raw material over the long term.

Analysts expect coking coal costs for Indian steelmakers to remain elevated at least through the second half of the year amid supply losses from China and Australia. Industry executives told Reuters that the Indian industry will have to absorb the higher cost of the key steelmaking commodity without the ability to raise prices, because of competition from Chinese producers.

By Charles Kennedy for OilPrice.com.