A cut in production by steel producers and higher
purchases of coking coal from Mongolia, has led to a softening of
benchmark coal prices from Australia.
The fall in coal prices will give steel companies, including those from India,
a chance to recover lost margins after the sharp erosion in profits seen in
previous quarters due to high iron ore and coal prices, said industry
executives.
Prices of coking coal had surged to above $300 a tonne, from $200 last year,
due to supply restrictions from Australia following flooding of mines and
increased demand from China.
However, with China now buying more coal from Mongolia,
demand for Australian coal has fallen, leading to a softening in prices. China
alone last year bought 35 million tonnes of coal from Australia.
“There is a pressure on Australia as large purchasers such as China and
South Korea have started buying from alternate markets. Moreover, coal prices
at $300-310 were too high for steel companies, who did not find it viable at
that level,” said Jayant Acharya, commercial director with JSW Steel.
“There is a substantial drop in prices when compared to
the peak levels of $330 or even $315 per tonne in the previous quarter,”
said Angel Broking senior research analyst Bhavesh Chauhan. “Since it is
for hard coking coal which is the best grade, prices of other grades of coal
too will be affected. However, at this stage, it is indicative of where prices
could be headed. We will have to see whether other major mining companies also
follow suit and lower prices,” he added.
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