Blast furnace at a steel plant in
South Wales. Tata Steel UK's Port Talbot plant produces steel for the
automobile, train and food industries, and employs 4,000 people. (Image:
Wikimedia Commons)
Prices of coking coal, a key ingredient in making
steel, are rebounding and will likely continue to squeeze margins of steel
companies for the rest of the year.
After falling for almost two months and touching a one-year low of
$190 per tonne in the first week of August, Australian coking coal prices rose
by over 40 percent to $270 per tonne, according to CoalMint, a market
intelligence website.
Australian coking coal prices are likely to touch $300-330 per
tonne in the December quarter, with some experts suggesting it could go as high
as $350 per tonne. Restocking, mainly by traders on expectations of a revival
in steel demand, has helped push up prices of late, CoalMint said in an article
dated August 26.
“On a daily trend basis, prices have gone up by over $80 per tonne
for the month of August 22. This would lead to a cost increase of over
$60 per tonne in steelmaking through the blast furnace route if everything else
remains the same,” Jayanta Roy, senior vice president at ICRA, told
Moneycontrol over the phone. “Considering a two-month procurement lead time for
coking coal, the average coking coal price for an Indian buyer would be almost
$200 per tonne higher in Q2FY23 over Q2FY22, which would translate into a
cost-push of close to $150 per tonne for steel.”
Most industry experts had factored a margin
compression for the quarter ending September but it appears there will be
little relief for the steel industry on the cost inflation front even for the
quarter ending December.
“The Q3 margins of steel makers will come under pressure as coking
coal prices are going up and steel prices are reducing,” said Rakesh Arora,
managing partner of Go India Advisors, a business consulting firm. “High coking
coal prices will last at least till winters as low-grade coking coal is now
being sold in place of thermal coal, a commodity which has been witnessing
acute shortage.”
Rising coking coal prices have been a concern for the steel
industry and one that isn’t likely to go away soon. Prices had cooled down
substantially towards the end of the first quarter of April-June, suggesting
that inflationary pressures would ease.