India Steel’s $1 Trillion Coal Risk Spurs Green Hydrogen Pivot

India’s $1 Trillion Coal Crossroads

India’s steel sector is set to nearly double its capacity over the next decade but faces a major financial and strategic challenge. A report from the India Energy and Climate Center (IECC) warns that continued reliance on traditional blast furnaces could mean importing around 6 billion tonnes of coking coal over 40 years, costing close to $1 trillion. This dependence leaves India’s foundational steel industry exposed to volatile global commodity markets and significant currency swings. For instance, coking coal prices on May 18, 2026, were $238 per tonne, up 26.60% year-on-year, illustrating this risk. This critical juncture aligns with a national goal to cut import dependence and boost industrial competitiveness amid global economic shifts.

Green Steel: Cost, Currency, and Trade Advantages

The IECC report highlights green steel, made with green hydrogen, as a practical and strategic alternative. India’s strong renewable energy base supports domestic green hydrogen production, with costs expected to drop to about $3 per kilogram by 2030. This could make green steel production only 5-10% more expensive than traditional methods. India’s National Green Hydrogen Mission aims for costs as low as $1.5 per kilogram by 2030 and aims to make the country a global green hydrogen hub. Unlike coking coal, priced in U.S. dollars, renewable energy contracts for green hydrogen can be in rupees, offering a shield against currency volatility and stable long-term costs.

This shift is also crucial given rising global trade rules like the European Union’s Carbon Border Adjustment Mechanism (CBAM). CBAM imposes carbon levies on imported goods, meaning steel from high-carbon-intensity countries like India’s blast furnace output could face charges of $210-$243 per tonne by 2034. The EU plans to expand CBAM to about 180 steel and aluminum products by 2028, increasing pressure on manufacturers to decarbonize. India’s own National Steel Policy 2017 aimed to cut coking coal imports to 50% by 2030, signalling a move towards greater self-reliance.

Valuations and Lingering Risks

Transitioning to green steel infrastructure requires significant capital expenditure, and the technology is still developing for broad industrial use. While green steel costs are nearing conventional levels, they remain slightly higher, requiring strong policy support and subsidies to close the gap. India’s steel companies, including Tata Steel (P/E 39.17), JSW Steel (P/E 41.90), and SAIL (P/E 27.75), are trading at high valuations compared to their past averages and industry peers. These high P/E ratios suggest the market has already factored in substantial growth and a successful transition, making them vulnerable to any earnings misses or delays in green steel adoption. For example, JSW Steel’s P/E of 41.90 stands out against the industry average of 28.02, showing investor confidence that could easily turn negative if execution falters. Furthermore, India still imports about 90% of its coking coal, a dependency that ongoing reforms aim to lessen but remains a core weakness. Disruptions in key export areas, such as Australia, can still cause price surges, as witnessed when Queensland flooding sent benchmark premium hard coking coal to $252.5/tonne in January 2026. Longer supply chains and freight costs for alternatives like U.S. coal also complicate diversification.

Policy-Driven Expansion and Green Steel’s Future

India’s steel industry is set to reach 300 million tonnes of production capacity by 2030, backed by government policies and investments from both public and private sectors. The National Steel Policy 2017 prioritizes technology upgrades, value-added products, and crucially, adopting low-carbon technologies. Strong demand from infrastructure, construction, and automotive sectors, alongside the push for sustainable production, supports continued industry expansion. Successfully implementing green hydrogen initiatives and managing trade risks will be key to India’s vision of becoming a global steel leader, boosting export competitiveness and energy security.