NEW DELHI (Reuters) - India is asking the country’s big steelmakers to consider converting local medium-quality coal into premium coking coal to slash an annual import bill of more than $4 billion for buying that grade from countries such as Australia and South Africa.

Resurgent local output of power-generating thermal coal has been one of Prime Minister Narendra Modi’s successes, and the latest project could help India to partly make up for a shortage of coking reserves that forces companies like JSW Steel and Jindal Steel to import heavily.

Coal Secretary Anil Swarup - who has held talks with companies including Tata Steel and SAIL - said the government could ask state-run Coal India to sign long-term contracts with steel companies to supply medium-grade coking coal that currently goes into power plants.

The plan would require investment of a few hundred million dollars for specialised washeries and other equipment to improve the coal quality, but that could lead to savings of billions of dollars in imports, according to Swarup.

“We have raised the quantity of coal produced, the aim is now to improve the quality,” Swarup told Reuters. “We are trying to formulate a policy.”

This could aid in meeting Modi’s goal of making the country self-sufficient in as many raw materials as possible, while at the same time exporting more value-added products like steel to boost local manufacturing and create jobs. (reut.rs/1XnpxQe)

India, the world’s third-largest steel producer and once an exporter to neighbouring countries, turned a net importer of the alloy in the past two years after China started to aggressively sell its excess steel across the world.

India is also the world’s third-biggest importer of coal, and the surge in local output, mainly of thermal coal, is hurting suppliers of that grade in Indonesia. If India starts to boost coking coal output as well, there could also be a few losers in Australia and South Africa.

But India will be able to substitute only 5-10 percent of the total coking coal imports to begin with, according to Dipesh Dipu, a natural resources expert at Jenissi Management Consultants that advises companies like Jindal Steel.

That could mean annual savings of around $500 million based on India’s imports of about 44 million tonnes of coking coal last fiscal year. The country’s total annual coking coal need is about 90 million tonnes.

India is in talks with companies in Poland and Australia for technical help in upgrading its coking coal quality.

It is also trying to douse underground mine fires that have burned for a century in Jharia, in the eastern state of Jharkhand, to better tap the only source of top quality coking coal in the country.

TURNAROUND

India’s total coal imports have fallen for the last seven months, a big change for a country that has struggled to feed its expanding power plants despite having the world’s fifth-biggest reserves of more than 300 billion tonnes of the fuel, almost 90 percent of that in thermal grades.

Faster environmental clearances and acquisition of land to expand mines have led to the turnaround, although Swarup acknowledged that India will not be able to produce all of its own coking coal.

“Indian coals can be beneficiated to substitute some amount of imported coals,” Tata Steel head spokesman Chanakya Chaudhary said.

Still, India expects its private steel companies and state-controlled SAIL to nearly triple production capacity to 300 million tonnes by 2025, which will further raise demand for coking coal.

“These steps may affect prices a bit but would not have a major impact on imports,” said Waseem Ahmad, head of New Delhi-based Sarah Sourcing, which trades in coal from Indonesia, Australia and South Africa.

“India has a bulk requirement and its steel industry will expand.”