Indian Steelmakers May Gain From China’s Ban On Australian Coal
Steel mills in China have been verbally told to immediately stop using coal from the South Pacific nation.
.jpg?rect=0%2C276%2C4000%2C2250&auto=format%2Ccompress&w=200)
Domestic steelmakers stand to gain as prices of the alloy produced in China are expected to rise after India’s neighbour to the east stopped buying coal from Australia amid diplomatic tensions.
China has suspended purchases of Australian coal and steel mills have been verbally told to immediately stop using coal from the South Pacific nation, Bloomberg reported. The Australian government is seeking a clarification.
S&P Global Platts and Argus Media first reported the coal ban this week.
A ban on Australian coal will push up Chinese local market premiums on coking coal, according to Ritesh Shah, research analyst at Investec. That, he told BloombergQuint, will make their steel exports less competitive on seaborne trade—a positive for Indian steel mills chasing exports.
Australian coking coal prices fell after March but have recovered from the year’s lows in the last three months.
Coking coal is a key raw material in steel production. About 780 kilograms is used to help turn a tonne of iron ore into molten metal in a blast furnace.
Higher coking coal and iron ore prices will push steel prices higher. That would mean higher domestic steel prices and better mining profitability for integrated mills such as Tata Steel Ltd. and Steel Authority of India Ltd., Shah said.
Jefferies, in a September-end report, said Indian steel prices have recovered 15% from June lows and should rise further as domestic demand revives. India turned a large steel exporter in the first quarter ended June 30, it said, but export pressures should ease with improving domestic demand, which is just 13% over a year earlier in August against a 65% drop in the first quarter.
Impact On Coal Prices
The premium between Chinese and Australian coking coal has grown from $46 at the end of September to more than $75 as of Oct. 13, according to Bloomberg. Australia has supplied China 60% of its imports of the high-quality coal needed in the steelmaking this year, it said.
Still, according to Rakesh Arora, managing partner, Go India Advisors, this wouldn’t result in higher coking coal prices outside China. Steel prices within China will inch up because of pressure of coking coal prices within China since local coal miners may want to take advantage, he said.
Arora, however, expects coking coal prices to fall since the excess coal from Australia may add to the pressure on global prices.