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India could require up to one billion tonnes of steel a year by 2035 — more than China now produces — as it undergoes potentially game-changing growth that could spur demand for Australian coking coal and iron ore, according to Australia’s Office of the Chief Economist.
And Australian thermal coal, including supplies from Indian giant Adani’s controversial Carmichael mine in Queensland, is expected to be needed for the nation’s growth in so-called high efficiency, low emissions (HELE) coal plants, despite Indian government plans to slash imports.
The extent of the jump in steel demand will have the biggest impact on Australian exports.
But it is highly uncertain and will depend on the growth path taken by the world’s most populous nation, which is rapidly urbanising, like China did at the start of the century.
“Commodity producers have good reasons to pay attention to India, and not merely because India is set to become the world’s most populous nation,” the Industry, Innovation and Science Department’s OCE said in its quarterly resources report.
“There are sound reasons to believe that India’s growth path may be potentially game-changing.”
For Australia, the biggest impact of growing Indian demand is likely to be on steel ingredients.
The OCE forecasts that India’s annual steel use, now about 89 million tonnes, will rise to between 222 million and 1.035 billion tonnes by 2035.
This could mean the country needs an extra 378 million to 1.75 billion tonnes of iron ore and 134 million to 619 million tonnes of coking coal a year, either from imports or its own production.
“It is certain that metal use will step up in India, as infrastructure is upgraded; however, the precise pace of this infrastructure rollout is difficult to assess, due to the complexities of infrastructure rollouts in a vast and complex nation such as India,” OCE said.
“As a result, high and low intensity scenarios for iron ore and metallurgical coal remain hugely divergent.”
The high-intensity scenario is based on India following a similar growth path to China, which few expect to happen.
But underlining the OCE’s optimism, the low-intensity scenario is not substantially weaker than official Indian projections of 255 million tonnes of annual steel use by 2030-31.
“Relatively low investment in manufacturing and construction compared to China is likely to see India’s development path lie somewhere between the lower metals intensity path of Latin American countries and the high intensity path of China,” the OCE said.
“Even the low intensity scenario will create a substantial commodity demand profile, given strong population growth, and thus potentially important export opportunities for the Australian mining industry.”
India’s iron ore reserves, and the government’s determination to be self-sufficient, could limit iron ore import demand.
But India does not have significant coking coal resources, meaning it will need to import most of its future demand.
And while the nation also has thermal coal reserves and a policy to be self-sufficient in the fuel by 2037, it is expected to keep importing top-quality thermal coal for new plants.
“India’s thermal coal imports are projected to start growing from 2019 as a result of India’s likely need for high quality coal to fuel their HELE power plants,” the OCE said. “India’s projections for cuts in imports to 50 million tonnes are likely to face headwinds, given India’s thermal coal import history, the relatively low quality of its domestic coal reserves, and the increase in the number of HELE power plants in operation over the next 10 years.”
India plans to reduce annual coal imports to 50 million tonnes in the next five years, from 150 million tonnes last year. “Australia should be very well placed to meet the majority of this demand,” the OCE said.
