On 21 May’22, the Indian government announced the removal of import duty on coking coal and met coke. While the duty on met coke was reduced to nil from 5% previously, the tariff on coking coal (including AIDC) was reduced to zero from 2.5% previously.
Although this was a move welcomed by Indian steel manufacturers grappling with elevated raw material costs, merchant met coke producers were left disappointed as cheaper coke imports would further dampen their sales.
Cost analysis
After analysing entire situation it can be inferred that the removal of coking coal would benefit Indian coke producers, but for steel producers, importing coke will be more cost effective as on today.
This is because the import duty on coking coal stood at 2.5% and its removal will result in cost savings of around 1,100/t for Australia-origin coking coal priced at $555/t CFR India.
On the other hand, met coke imports attracted a duty of 5% and with its removal the savings would be around INR 2,400/t for China-origin met coke priced at $600/t CFR India.
This means the disparity between imported Chinese coke price and domestic coal to coke conversion cost, which was already very high at around INR 20,000/t, would further go up by INR 1,100-1,150/t. This difference would widen in case Australian coking coal price rises or Chinese coke price goes down further.
Merchant coke producers react
The government’s move to cut tariffs has left Indian merchant met coke producers worried as they were already reeling under sluggish domestic demand since the past few weeks.
“We are already selling coke in the merchant market at lowered rates of INR 53,000-54,000/t against our conversion cost of INR 69,000-70,000/t, in order to match Chinese offers. Now, although the disparity between coal conversion cost and Chinese coke offers would rise further, we have no scope to cut down on our offers, adding significantly to our losses”, said a coke producer based in Kolkata, West Bengal.
Near-term demand outlook
Above graph exclude semi-finish steel exports
Domestic steel demand in India has been sluggish since past two months amid high steel prices. Indian government has introduced measures such as increased export duty on iron ore/pellet and steel. Now, this decision would result in reduced steel manufacturing cost and increased steel supplies in the domestic market, ultimately leading to downward correction in steel prices.
However, with the monsoon season nearing, Indian steel demand would slow down further with construction activities coming to a halt. This means that domestic steel demand will continue to remain sluggish for the next few months despite downward correction in steel prices. This will result in tepid coke demand and poor sales for Indian merchant coke producers.
At this juncture, the only hope for coke sellers is demand revival in China’s downstream sector with easing of lockdown restrictions, that would make Chinese coke sellers focus on domestic sales and reduced competition for Indian merchant coke producers.
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