Coking Coal prices decline in a year by around 24% to USD 126-127/MT is driving steel companies to re-think over procurement strategies.
Most of the Indian steel companies used to source almost 80-90% of Coking Coal by long term agreements with suppliers to assure timely supply. Whereas, fall in Coking Coal prices has led producer to reduce their long term purchasing by 15-20%. Presently, they are going for around 60% long term agreements and rest 40% they used to source from spot market. But, as the Coking Coal prices have fallen substantially, companies tend more towards short term procurement in last 6-7 months and if prices fall continuously, they may also increase spot purchasing as the spot and long term prices differential increases.
China, which is driving the Coking Coal prices in international market, faces the slowdown. This slowdown led to decrease China’s Coking Coal requirement which further slashed the Coal prices.
Fluctuation in Coking Coal prices have increased. From market, it is noted that long term contracts are estimated around USD 120-125/MT for Premium grade Coking Coal. Whereas in spot market, prices have fallen to around USD 108-110/MT.
Companies used to sign long term agreement for yearly supply earlier. Whereas now, industry is more interested in quarterly procurement, as demand of steel is quite uncertain and raw material prices are more volatile letting companies to enter in short term agreements. As the demand of steel uncertain, short term purchasing is flexible option for industries as many steel makers have reduced their production.
China has slowed its steel production and US also eliminating Coking Coal by including shale gas usage in steel production, has left with oversupplied Coking Coal market and prices to fall.
During the FY14, India’s Coking Coal import has increased by 10.3% from last year and imported 39.5 MnT. Around 80% to 31.6 MnT Coking Coal has imported from Australia and around 7% to 2.7 MnT from USA.
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