Trade remedial measures such as minimum import price and anti-dumping duty immensely helped domestic the steel industry to tide over the turbulent time of more than two years. With imports plummeting and prices on the rise, it was slowly coming back into life, but the sudden spike in the prices of coking coal might push it back into the hard times once again.
Indian steel makers depend largely on the coking coal to feed their blast furnaces. Almost two-thirds of their requirement is met from imports. The recent spike in the prices of coking coal has left them in the lurch. It generally takes 0.9 MT coking coal to produce 1 MT steel.
Coking coal prices rose to over $200 per tonne now from $92 a tonne in July mainly because of higher demand from China amidst subdued local supply. On the other hand, between February and now, the price of hot-rolled coil (HRC), the benchmark steel product, have rose by around $ 80 a tonne. This has become a huge cause for concern for the domestic steel industry.
In a recent report, rating agency ICRA has said the impact of the coking coal price rise could be felt in the fourth quarter of the current fiscal as steel firms generally maintain 70-90 days’ stock which would mean that they would be able to by-pass the impact of the price rise of the raw material for a good part of the third quarter. Indications are there that the second quarter of the current fiscal have been quite good for most of the steelmakers.
While passing on the inflated cost on to the consumers could have been the easiest option, the domestic steel industry may not take a steep price hike as market would find it difficult to absorb given the anemic consumption growth in the country.
International contract prices of benchmark low volatile premium hard coking coal (HCC) for the October-December period of 2016 have been settled at $200/MT, showing a 116% Quarter-on-Quarter increase from $92.5/MT in the July-September period of the current year.
This has resulted in an additional Rs 5,750/tonne cost push for the steelmakers. ICRA believes that the coking coal contract prices in Q1 CY’2017 to be lower than the highs of Q4 CY’2016, aided by higher global supplies though the levels of US$90/MT, which were prevailing between Q3 CY’2015 to Q3 CY’2016, are unlikely to be re-visited any time soon.
Source: CoalMint Price Database
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