BHP expects Indian steelmaking boom to drive its coal business

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BHP expects the rampant expansion of India’s steel industry to boost its coal business significantly, with the world’s largest miner refocusing after being hit by a Chinese ban on Australian products.

Around 40 per cent of BHP’s metallurgical coal — used by steel mills and also known as coking coal — is now heading to India, chief commercial officer Vandita Pant told the Financial Times in an interview. The figure is up from 30 per cent in its 2019 financial year. India had become a “very big, big market” for the Melbourne-based company, said Pant. 

The government in India expects to grow its steel production to 300mn tonnes a year by the end of the decade, from 125mn tonnes last year, according to officials. Steel demand has been driven by India’s rapid urbanisation, which is boosting infrastructure spending and the growth of the country’s industrial sector.

BHP has a more cautious forecast, according to Pant, who hails from Delhi. “Even if that [government target] misses a bit, and let’s say it’s 260 (mn tonnes) which is 15 per cent less, it’s a huge growth trajectory,” she said.

That demand would become pivotal to the growth of BHP’s metallurgical coal business in the coming years, Pant added. A decarbonisation push within India meant that demand for high-quality Australian coal, with its lower emissions, would grow.

“As Indian steel mills continue to invest in and get really focused on decarbonisation, which they are, the mix of met coal used by the steel mills will continue to pivot towards higher and higher quality coal, which plays to our strengths,” she said. 

Pant, who is based in Singapore but visited customers in India including Tata Steel last week, predicted BHP copper and potash would also flow into India in greater volumes as the trade relationship between Australia and India strengthened.

The growth trajectory for supplying India is in contrast to the outlook in China, where Australian coal has been subject to trade sanctions levelled on a variety of products ranging from wine to barley to lobsters.

Those sanctions, imposed in 2020 in the form of steep tariffs and unofficial bans on some Australian imports including coal, were triggered by growing geopolitical tension between the two countries and the then-Australian prime minister’s call for an inquiry into the origins of Covid-19. 

While the ban on coal has started to unwind this year, with shipments from Australia resuming as trade tensions have eased, BHP had been forced to look to other markets such as India.

Vivek Dhar, director of mining and energy research at Commonwealth Bank, said that Australia accounted for between 40 and 45 per cent of China’s metallurgical coal imports before the unofficial ban was implemented, with imports from Mongolia and Russia now filling the void.

The analyst said that it was hard to see those trends reversing, with China only likely to account for 5 to 10 per cent of Australia’s metallurgical coal exports in the coming years, compared to a quarter before 2020. 

Dhar said that India is likely to take a larger share of Australian metallurgical coal in the future, having overtaken Japan as the largest export destination.