Indian Steel Finally Gets Some Coking Coal Relief, Now Iron Ore is the Problem

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Cold-rolled steel

Indian steel producers that use blast furnaces are in for some relief due to the downturn in the price of international coking coal.

In its recent report, rating agency ICRA Limited (formerly Investment Information and Credit Rating Agency of India Limited) said that iron ore is expected to be a bigger supply problem for the Indian steel industry, much more so than coking coal.

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Coking coal prices dipped about 16 percent in the first quarter of 2014-15 as compared to the previous quarter. Nearly the same contract prices have been rolled over in the second quarter. The Business Standard quoted ICRA Senior Vice-president Jayanta Roy saying with the rupee-dollar rate remaining stable this fiscal year, the decline in price had come as a relief to blast furnace operators of India.

In 2014, there was a 13 percent decline in coking coal prices. Already, many of the Indian steel players have posted better than expected financial results in the first quarter of 2014-15, because of the lower price of coal.

But, as ICRA pointed out, and as we, at MetalMiner, too, have been reporting, Indian iron ore production continues to be a major problem for domestic steel plants. Some of the mines, under a court-imposed ban, were recently allowed to commence operation, but production is yet to resume at the other mines.

Steel demand in India in 2014 remained weak, registering an increase in consumption of just 0.6 percent to 73.9 million tons. This year, stable international prices and exchange rates and weak domestic demand until mid-year made Indian steel players partially roll back price hikes announced at the end of last year. Some steel companies have said they would be forced to increase prices in the next few months if the price of raw materials goes up.

Incidentally, on the coking coal front, a couple of months ago the new Indian government raised the import duty from zero to 2.5 percent. This is expected to raise the input costs of Indian steel producers by about US $2 and US $5 per ton of steel produced. Besides coal, India continues to import iron ore to meet domestic demand.

Indian steel makers mostly use imported coking coal for use in the blast furnace, and need around 40 million tons of coking coal per year. Of this, about 32 million tons were imported in 2013-14. Some analysts say the inadequate supply means there is a possibility of a three-fold rise in the annual coking coal imports to 120 million tons in the next 10 years.

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