High coking coal prices to impact gross margins of steel mills: Ind-Ra

High coking coal prices are likely to impact gross margins of steel mills, says India Ratings and Research (Ind-Ra). Accordingly, coking coal prices were up 5 per cent month-on-month and 103 per cent year-on-year to $ 222 per tonne in mid-August 2021.

“Australian coking coal prices are receiving support from a strong demand from Asian countries, ex-China. The limited availability of prompt coking coal cargoes for near-term deliveries due to logistical issues, including freight and container unavailability and high freight rates, could support coking coal prices over the near term.”

“While China’s imports are from ex-Australia suppliers, these countries are not likely to be able to bridge the supply deficit, especially when the domestic consumption within these ex-Australia supplier countries is also increasing with resumption in economic activities, further restricting supply. This will support international coking coal prices,” said Ind-Ra.

India’s coking coal imports at 5.7­­­­6 million tonnes in July 2021 were 65 per cent month on month and 114 per cent year on year higher. “While steel production has improved, domestic steel mills had postponed procurements due to higher coking coal prices. However, lower inventories prompted steel producers to import higher volumes in July 2021,” said Ind-Ra in its report.

A key trend, Ind-Ra has observed, is the preference of Indian blast furnace producers for better grades of coking coal to maximise production yield, considering that freight costs are the same irrespective of the grade, amid container shortages and higher freight costs. India’s finished steel consumption in July 2021 stood at 7.66 million tonnes, 1.3 per cent month on month and 4.8 per cent year on year higher. However, domestic consumption was weak over June-July 2021 due to a lower demand from end-use industries such as construction and infra, with the onset of the monsoon.

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