The price of coking coal surged by 100 per cent to around $310 a tonne in April 2017, which was nearly to the peak levels of last year, but it has already corrected to around $190 a tonne.
“Iron ore prices in India have, however, more or less been maintained. In India, public sector miner NMDC revised prices of lump ore in March to Rs 2,425 from Rs 2,325 in February, while private miners in Odisha have raised prices by about Rs 400 a tonne. Steel prices are also at the same level. The missing link is coking coal. The coking coal contract for the quarter has not been sealed yet,” ICRA senior vice-president, Jayanta Roy, said.
Last year, coking coal prices started moving up from July and reached peak levels in November, after which it finally started softening. By March 2017, it had corrected to about $150 a tonne.
Together, iron ore and coking coal account for about 75 per cent of the total cost for steel.
JSW Director (Commercial & Marketing), Jayant Acharya, said, unfortunately, spot prices could not be increased even though there was a cost push. “The price environment is not conducive. There is also a pressure in global prices,” he said. Contract prices, however, could be increased.
According to the Joint Plant Committee figures, there was an overall softening on all fronts in April over March.
For instance, India’s consumption of total finished steel saw a growth of 3.4 per cent in April 2017 to 6.015 million tonnes (mt) over April 2016, but declined by 22 per cent over March 2017, under the influence of a declining supply side as both the production for sale and imports had declined in April 2017 over March 2017.
Production for sale of total finished steel at 8.43 mt registered a growth of 8.7 per cent over April 2016, but was down by 8.6 per cent over March 2017.
Imports of total finished steel was at 0.504 mt in April 2017, a declined of 23 per cent over April 2016 and also a fall of 16 per cent over March 2017. Exports of total finished steel was up by 142 per cent in April 2017 to 0.747 mt over April 2016, but declined by 54 per cent over March 2017.
Add to it, the surge in coking coal, and things could get complicated for steel companies
if it doesn’t correct in the near term.
According to India Ratings, the current situation is temporary and caused by a cyclone in Australia which damaged Railway lines disrupting the supply.
“Once the supply eases, regular coking coal prices will correct from the current peak. However, it may not decline to the lows of $75 a tonne witnessed in January 2016. If coking coal prices remain high without the commensurate opportunity for the players to pass on the increased cost during FY18, the profitability could be severely impacted,” the India Ratings report said.