SAIL’s trial shipment of Mongolia coking coal is small in physical terms but significant as a signal of the pressure building around India’s steel supply chain. The state-backed steelmaker has airlifted a one-metric-tonne sample to assess whether the coal can meet its steelmaking requirements, as India searches for alternatives to a supply structure dominated by Australia.
The trial does not amount to a commercial supply agreement. SAIL will decide whether to pursue long-term purchases after assessing the coal’s suitability, cost and transport feasibility. But the test brings into view a wider constraint on India’s industrial and urban expansion: the country produces large quantities of steel while remaining heavily dependent on imported coking coal, a critical input whose price and availability affect construction, infrastructure and manufacturing.
India imports about 95% of its coking coal requirements, according to the report published by The Hindu BusinessLine, citing Reuters. Australia supplies at least half of those imports. Coking coal accounts for nearly 40% of steel production costs, making the raw material a direct cost pressure for steelmakers and an indirect pressure on projects that depend on steel-intensive construction.
That dependence has become more important as India’s steel demand and production capacity expand. India is the world’s second-largest crude steel producer after China, while its coking coal imports are expected to rise by 3% to 5% in 2026-27 from 64 million tonnes a year earlier, according to commodities consultancy BigMint. Domestic coal does not fully meet steelmakers’ requirements, leaving imported material central to the country’s ability to produce steel at scale.
The Mongolia option is therefore less about replacing Australia immediately and more about testing whether another source can strengthen India’s negotiating and supply position. The trial was planned last year, and the latest shipment is intended to establish whether Mongolian coal can be used in the steelmaking process. The decision will depend not only on quality but also on whether the material can reach Indian plants at a commercially viable cost.
That logistics question is unusually difficult. Mongolia is landlocked between Russia and China. Direct access to a seaport is not available, so any future movement of coal to India would require a transit route through another country. The report said India would likely have to depend on a longer route through Russia, partly because strained relations between New Delhi and Beijing make a China-linked route strategically difficult.
This turns the proposed supply chain into a combined quality, geography and geopolitics problem. Even if the coal performs well in testing, it would still have to travel across a long and complicated route before reaching Indian steel plants. A metallurgical coal analyst cited in the report said shipping through Russia would make the material significantly more expensive than competing supplies, although its quality is superior.
The distinction between technical suitability and commercial viability is important. A coal source may meet the metallurgical requirements of a steel plant and still fail to become a dependable supply option if freight, transit arrangements, insurance and route risks push its delivered cost too high. The supplied report does not provide a final landed-cost estimate for Mongolian coal, nor does it disclose the results of SAIL’s testing. Those are the facts that will determine whether the trial progresses beyond a sample shipment.
India’s supply diversification effort is already broader than Mongolia. Imports from Russia, Mozambique and the United States are also forecast to increase, while Australia is expected to remain the largest supplier. This indicates that diversification is being pursued through a wider portfolio rather than through a single replacement source. The objective is to reduce exposure to concentration risk while continuing to secure the volumes required by India’s steel industry.
The arrangement also has a bilateral institutional dimension. India and Mongolia agreed last year to work towards securing coking coal and copper supplies for Indian companies. However, the report does not establish that this understanding has created a guaranteed commercial corridor or a confirmed long-term procurement agreement. At this stage, SAIL’s test remains an assessment of both the coal and the route needed to transport it.
The urban significance lies in what happens between raw material procurement and the finished city. Steel is embedded in buildings, bridges, rail systems, industrial facilities, transmission structures and other infrastructure. The report does not quantify the share of coking coal costs passed into particular construction projects, and it would be inaccurate to treat the Mongolian trial as an immediate change in prices for urban consumers. But it does establish that a major input into steel production is exposed to international supply, transport and geopolitical pressures.
Indian steelmakers have raised prices in recent weeks as coking coal costs increased and domestic demand revived, Reuters reported earlier this month. For the construction and infrastructure sectors, movements in steel prices can affect procurement decisions and project costs, although the extent and timing of that effect depend on contracts, inventories and market conditions. The supplied material does not provide project-level cost data, but it does connect coking coal costs to steel production costs and recent steel price increases.
The pressure is likely to remain structural because India is expanding steel production and will require substantially more coking coal, most of which will need to be imported. That creates a tension at the heart of the supply strategy. India needs more reliable and varied sources, but alternative sources may be farther away, more expensive or dependent on complex transit arrangements.
For public authorities and steel companies, the issue is consequently not only where coal is mined. It is also how procurement, transport corridors and foreign-policy considerations fit together. A new supplier can improve resilience only if the entire chain—from mine to border crossings, transit routes and Indian plants—can operate predictably and at an acceptable cost.
SAIL’s test will provide an early indication of whether Mongolia can participate in that chain. The company is expected to make its decision based on the coal’s suitability, the cost of obtaining it and the feasibility of transporting it. Until those assessments are completed, Mongolia remains a potential source rather than an established supplier.
What the trial confirms is the scale of India’s dependence: a country producing steel for an expanding economy must still look overseas for most of the coking coal needed to make it. The unresolved question is whether diversification can deliver genuine resilience when the alternative routes themselves are longer, costlier and shaped by geopolitical constraints.
