AUSTRALIA is in the box seat to take advantage of an explosion in Indian demand for coking coal, Reserve Bank research suggests.
The Reserve's assessment of India's steel industry came as JP Morgan Chase spoke of a "hard landing" in China and said it had already started.
The research, by Markus Hyvonen and Sean Langcake from the Reserve's economic group, found that India was the world's fourth-largest steel producer, after having been 10th-largest as recently as 1995. But it said relative to the size of India's economy, its steel consumption remained low.
India has large reserves of relatively high-quality iron ore and is likely to be able to feed its growing steel industry without any need for imports. But its reserves of coking coal reserves are "quite small and tend to be of low quality, needing to be blended with higher-grade imported coal".
India is now the third-largest importer of coking coal and has become the second most important destination for Australian coking coal behind Japan.
Although India's national steel policy has identified the need to further develop non-coking coal methods of production such as electric arc furnaces, its existing capacity means coking coal is likely to continue to play a role in the development of the local steel industry and "drive further demand for Australian coking coal in the future".
China will be demanding less Australian coal because it is in a "hard landing", JPMorgan Chase & Co's chief Asian strategist, Adrian Mowat, said yesterday. "If you look at the Chinese data, you should stop debating about a hard landing," he told a Singapore conference. "Car sales are down, cement production is down, steel production is down, construction stocks are down. It's not a debate any more, it's a fact."
The Chinese Premier, Wen Jiabao, said this week home prices are still far from reasonable levels. His comments fuelled concerns the government will maintain restrictions on the property market even if they threaten to slow economic growth.
"One should be concerned about what's happening in the China property market," Mr Mowat told the Singapore conference. "People are too complacent."
Yale University professor Stephen Roach, a former non-executive chairman for Morgan Stanley in Asia, said concerns about a hard landing were vastly overblown. "I don't think the banking system will collapse and the property bubble will burst," he told a conference in Shanghai. "These are all exaggerations."
The Greens' Christine Milne said yesterday China and India were openly discussing moving away from coal. She moved a motion calling on the government to require the Bureau of Resources and Energy Economics to review its modelling "based on the current geopolitics of coal". It was defeated along party lines.
Recent India coal deals:
Adani Enterprises Linc Energy Galilee Basin, Queensland, $500 million.
GVK Group Hancock Coal Galilee Basin, Queensland, $1.2 billion.
Lanco Infratech Griffin Coal Collie, Western Australia, $750 million.