Global thermal coal market has faced significant headwinds, pressured by soft coal prices, reduced demand from major importers China and India and uncertainties surrounding Indonesian government's export policies.

However, South African miners are seeing a silver lining, buoyed by increased demand from top buyer India, as well as improved rail infrastructure that allows higher volumes, according to Reuters columnist Clyde Russell.

Notably, the surging demand was driven more by industrial processes such as making sponge iron and cement, than traditional use of power generation, Russel underscored.

Thanks to the restoration of national rail network, South Africa is expected to deliver 6 million tonnes more coal in 2026, according to the South African Coal Conference organized last week in Cape Town.

The country's coal exports totaled 60.96 million tonnes in 2025, rising 4.9% from 58.13 million tonnes a year ago and marking the third straight year of gains, Kpler data showed. Among this, nearly half, or 30.34 million tonnes, were delivered to India.

India is the world's largest producer of sponge iron, an intermediate product between iron ore and crude steel. It churned out approximately 55.7 million tonnes in the 2024-25 fiscal year. The volume is estimated to rise to 75 million tonnes by 2030 given the country's strong demand for steel.

Each tonne of sponge iron requires around 1.2 tonnes of coal to produce, and South African coal is in the sweet spot of the type needed for the process.

Sponge iron production is generally most efficient when using coal with calorific value of around 5,000 to 5,500 Kcal/kg. While Australian, Russian and U.S. miners also produce similar quality coal, South Africa's proximity to India gives it an edge on a delivered cost basis.

The world's largest coal exporter Indonesia produces lower energy coal, which is highly favored by Indian utilities due to cheaper prices than grades from other producers.

With little competition from Indonesia, South Africa is the supplier of choice to India's sponge iron producers, who struggle to source sufficient domestic coal as policy dictates that power companies have priority.

India's sponge iron production is anticipated to rise by 20 million tonnes per annum by 2030, leading to additional coal demand of 24 million tonnes. Although South Africa may not be able to meet the demand by itself, the country's exporters will sell whatever volumes they can ship.

India's cement producers also rely on imported coal. In the 2025-26 fiscal year, the country's cement output is expected to rise to 480 million tonnes from the previous fiscal year.

Although cement production is less coal-intensive than sponge iron, it takes up to 250 kg of coal to produce one tonne of cement. This means rising cement output will boost India's coal demand by several million tonnes annually, which is unlikely to be met by domestic market.

The question lies to whether the demand can spark a rise in coal prices, which dived to a four-year low in mid-2025 and rebounded marginally since then. Future price trends will hinge on the demand for South African coal from developed economies in North Asia, such as China, Japan, and South Korea.

Yet, the demand for higher quality thermal coal from these counties may keep flat or trend downward, as Japan and South Korea limited coal-fired power generation and China continued to roll out renewables at a rapid pace.

Even with relatively stable seaborne coal prices, South African coal should still be able to sell all shippable coal due to its competitive advantage over other suppliers.

As a conclusion, the structural demand growth from India's industrial sector is opening a new pathway for South African miners to bolster thermal coal exports beyond traditional power generation demand.