Sharp increase in coking coal prices may impact gross margins of steel mills: Ind-Ra

New Delhi: Domestic rating agency India Ratings and Research (Ind-Ra) said that a sharp increase in coking coal prices is likely to impact gross margins of steel mills.

"Australian coking coal prices are receiving support from 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" it said.

Accordingly, coking coal prices were up 5 per cent MoM and 103 per cent YoY to $222 per MT in mid-August 2021.

"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 a resumption in economic activities, further restricting supply," Ind-Ra said in a statement.

"This will support international coking coal prices" it added.

India's coking coal imports at 5.76 MT in July 2021 were 65 per cent MoM and 114 per cent YoY 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."

Accordingly, Ind-Ra observed a key trend wherein there is a growing preference for 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 MnT, 1.3 per cent MoM and 4.8 per cent YoY higher.

Meanwhile, Ind-Ra also pointed out that the domestic consumption was weak over June-July 2021 due to lower demand from end-use industries such as construction and infra, with the onset of the monsoon.