Cheaper Coking Coal May Not Bring Cheer For Indian Steelmakers Just Yet

Prices of a key raw material in steelmaking have declined but that may not lift margin for Indian mills.

Australian coking coal fell $50 a tonne over the preceding month to $383 in November, according to data released by SteelMint. That, it said, came as demand for the metallurgical coal and steel dropped in the world’s top consumer China, and production increased.

Input costs for Indian steel producers surged as a shortage of coal in the nation forced them to compete with other industrial consumers for supply. Domestic mills are paying more than four times the normal cost, Bloomberg reported citing Jindal Steel & Power Ltd.

According to Tata Steel Ltd.’s Managing Director TV Narendran, however, cost pressures are likely to have peaked. He doesn’t see any “niggling effect” of it in the fourth quarter until unless coking coal prices were to go up again.

But the companies’ margin may not benefit much.

Any reduction in variable cost (coking coal) will be directly passed on to the consumers in the form of price cuts within a period of 45 days or two months, VR Sharma, managing director at JSPL, told BloombergQuint over the phone. “Coking coal prices have cooled to $360 a tonne from the peak of $430-plus levels—savings of $70 a tonne. This should translate into a $35-a-tonne price cut given that 0.7 tonne of coking coal is required to produce one tonne of steel.” Steelmakers, he said, would pass this benefit mostly in the fourth quarter.

JSPL’s Sharma doesn’t expect any changes in Ebitda per tonne.

Tata Steel’s Narendran said the company would hike steel prices by Rs 2,500 a tonne sequentially for the quarter ended December to offset rising costs. And he also sees demand for the alloy to pick up pace. Yet, margin would remain steady, he said, adding the impact of a price rise would reflect only in the fourth quarter of the ongoing financial year.

BloombergQuint’s emailed queries to JSW Steel Ltd. didn’t elicit a response.

A fall in global steel prices may impact domestic rates, dragging down realisation, or the average selling price per unit of the product. That would offset any benefit from reducing cost pressures. Indian hot-rolled coil export offers fell about $25 a tonne, weighing on buying sentiments, SteelMint said in a report.

According to Edelweiss Securities, Indian export prices have declined 3-5% in the week ended Nov. 19, following a 10% decline in China’s export price to $795 a tonne—the lowest since March 2021.

Margins are expected to moderate, according to Jayanta Roy, senior vice president at ICRA Ltd. Yet, he said, they will remain elevated compared to historical standards.