Indian steel mills, the second-largest producers of crude steel globally, have faced challenges with inconsistent Australian coal. As a result, the government has sent delegations to Mongolia to diversify its coking coal sources. Despite the longer transit route through Russia, Indian steel companies are now considering this option, as highlighted by the anonymous official due to the sensitive nature of the discussions.

Concerns about strategic sourcing via China have prompted this shift, especially following tensions between India and China, which escalated after a military confrontation in June 2020 along their disputed Himalayan border. While some supplies have reached India through China, authorities believe it is essential to avoid complete reliance on Beijing for consistent coking coal imports from Mongolia.

Mongolia, rich in resources yet landlocked, offers high-grade coking coal at approximately $50 per metric ton less than Australian coal. Indian steel companies consume about 70 million metric tons of coking coal annually, with 85% sourced from imports. Historically, Australia has supplied more than half of these imports, supplemented by coal from Russia, the United States, and other nations.

In the first half of the current fiscal year, India imported 29.4 million metric tons of coking coal, marking a nearly 2% increase from the previous year, according to commodities consultancy BigMint.