Fall in coking coal price likely to boost Indian steel companies’ profitability

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Domestic hot-rolled coil prices have gone up by Rs 4,000 a tonne on the back of buoyant international prices and gradual improvement in domestic demand conditions.

Seaborne coking coal prices have fallen to about $106 a tonne by August-end from $163 in March due to sharp dip by major importing countries such as Japan, European Union, South Korea and India due to Covid pandemic.

The fall in coking coal prices is expected to more than negate the impact of rise in domestic iron ore price. Steel making cost of a blast furnace operator is expected to come down by about $35 a tonne.

Given the lag of 2-3 months for imports to reach India, the full benefit of this price decrease would flow in the September quarter of domestic steel mills, which would more than offset the price hikes announced by domestic iron ore miners in the last two months.

Jayanta Roy, Senior Vice-President, ICRA, said the rise in Chinese HRC export prices by about $70 a tonne in June indicates a further hike in domestic prices. However, he said the extent of domestic steel price hike would be limited as the steel demand has not yet reached pre-Covid levels, and that the Japanese HRC export prices are currently more competitive than domestic prices. Moreover, Japan enjoys duty-free steel exports to India.

Domestic steel consumption recovered in recent months after the lifting of countrywide lockdown restrictions in May. However, it is still down 43 per cent in four months of this fiscal compared to last year. Roy said along with rising volumes and steel price hikes, a quarter on quarter drop of $35-40 a tonne in coking coal prices is likely to more than offset the recent hikes in iron ore prices of close to Rs 700 a tonne announced by merchant miners.

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