India’s Steel Ambition Hinges on Green Hydrogen Pivot

THE SEAMLESS LINK

The escalating demand for steel, a cornerstone of India’s economic development, is creating an unsustainable reliance on imported metallurgical coal. As the country races towards a 300 million tonnes per annum crude steel capacity by 2030, approximately 90% of the required met coal is sourced internationally, primarily from Australia. This dependence not only strains foreign exchange reserves but also exposes the sector to significant price shocks and supply chain vulnerabilities, prompting an urgent re-evaluation of production strategies and a pronounced shift towards cleaner alternatives like green hydrogen.

The Core Catalyst: Import Dependency & Volatility

The planned expansion of 182 mtpa of blast furnace (BF) capacity necessitates an additional 140 mtpa of met coal, exacerbating India’s import dependency. This reliance is structural, with domestic production, despite government initiatives like ‘Mission Coking Coal’ targeting 140 million tonnes by 2030, facing quality issues such as high ash and sulfur content, and insufficient beneficiation capacity. Consequently, India’s steel sector remains vulnerable to global price fluctuations and geopolitical risks, a situation amplified by volatile natural gas prices and supply concerns impacting energy markets globally. The cost of coking coal constitutes a substantial 35-45% of crude steel costs, making this import dependence a critical economic and energy security issue.

The Analytical Deep Dive: Global Strategies and India’s Position

Competitor Benchmarking: Globally, the steel industry is increasingly embracing cleaner technologies. China, despite its massive steel output, is transitioning by approving greener capacity using Electric Arc Furnace (EAF) technology, aiming for a significant share of scrap-based EAF and hydrogen-based DRI-EAF processes. The European Union is setting stringent standards for renewable fuels of non-biological origin (RFNBOs), including green hydrogen, with binding targets for industrial use. While the US is leveraging incentives like the Inflation Reduction Act to boost green hydrogen production for steelmaking, its progress faces competition from low-cost conventional hydrogen. India, as the world’s second-largest steel producer, is actively exploring these alternatives, with green hydrogen-based DRI-EAF routes projected to contribute significantly to its net-zero steel targets by 2070.

Historical Context & Macro Correlation: India’s met coal imports have seen fluctuations but remain persistently high, rising from 51.20 million tonnes in FY21 to 57.58 million tonnes in FY25. The ‘Mission Coking Coal’ aims to boost domestic output, but the structural deficit, with only a fraction of raw coal meeting metallurgical standards, persists. Macroeconomic factors, including global energy price surges and China’s demand, directly influence India’s import costs and supply security, underscoring the urgency for domestic alternatives. The EU’s Carbon Border Adjustment Mechanism (CBAM) also pressures countries with carbon-intensive steel production to decarbonize or face trade barriers.

Analyst Sentiment: Analysts widely acknowledge the persistent coking coal deficit in India, predicting it will continue despite domestic production efforts. They highlight that green hydrogen and scrap steel are becoming strategic domestic resources to mitigate energy and material security risks. The cost of green hydrogen is projected to fall significantly, making it economically viable for steelmaking by the 2030s, with EY projecting a drop from $7/kg in 2024 to $1.8-2/kg by 2040.

⚠️ THE FORENSIC BEAR CASE

Despite India’s strategic focus on green hydrogen, significant hurdles remain. The current cost disparity between green hydrogen ($4-12 per kg) and grey hydrogen ($1-2 per kg) remains substantial, although falling prices are anticipated. The sheer scale of investment required for green steel transition, estimated at $297-304 billion by 2070, presents a major financial challenge. Furthermore, while the EU has established clear RFNBO standards, global inconsistencies in definitions could constrain India’s export potential, especially under EU regulations. The cancellation of SECI’s tenders for hydrogen hubs also indicates the practical challenges in scaling up infrastructure and demand creation [cite: original text]. The dominance of coal-intensive blast furnace technology in India, accounting for 65% of installed capacity, means a rapid transition is complex and requires significant technological adaptation. Unlike China, which is approving greener capacity, India’s planned capacity expansion still heavily relies on coal-based BF-BOF routes, with over 200 Mtpa still tied to coal by 2040.

THE FUTURE OUTLOOK

India’s National Hydrogen Mission aims to establish the country as a global leader in green hydrogen production, targeting 5 million metric tons annually by 2030. While revised government expectations place this closer to 3 mtpa, the focus is shifting towards building robust domestic demand, with the steel sector identified as a primary pathway [cite: original text]. Projects like JSW Energy commissioning India’s first commercial-scale green hydrogen plant signify early momentum [cite: original text]. Policy interventions, including green public procurement and hydrogen purchase obligations, are deemed essential to anchor early demand and mobilize private investment [cite: original text]. With projected cost reductions, green hydrogen is expected to become a significant part of India’s steelmaking landscape, potentially comprising 13% of crude steel output by FY50 and 41% by FY70 under net-zero scenarios.