Following on Part One of this story, the impact of the falling rupee may be more visible on the import of coking coal. India as of now is the 3rd largest importer of coking coal. As per some estimates, the Indian steel industry will need to import 36.8 million tons of coking coal in 2012 to meet estimated steel demand of 58.7 million tons.
Compared to last year, the international price of coking coal is down this year.
India steel producers use largely coking coal Grade II. From a price of US $320 ton in the first quarter of this fiscal year, the price is now down to almost US $230 a ton. But the higher gains were offset by the currency loss, though analysts say steel companies will end up ultimately getting a benefit of 25 percent after adjusting the rupee slide loss.
Already, this past week, steel majors have expressed worry on their import bills getting inflated. Essar Steel’s CFO Amit Agarwal was quoted in The Economic Times on Thursday as saying the strong dollar had increased pressure on his company’s margins.
Buying the home variety of iron ore had become slightly more costly in the first week of May for Indian steel manufacturers. India’s state-owned NMDC, which has 40 percent of India’s iron ore market, hiked iron ore prices by about 10 percent on May 1, as the Economic Times put it, “because of rising demand for the raw material used in making steel.”
Domestic prices of iron ore lumps went up by 10 percent and fines by about 8 percent, taking prices between Rs 250-400 a ton. Higher-grade ore lumps with 65% iron content were priced at Rs 5,400 a ton, while the fines with 64% iron were priced at Rs 2,800.
NMDC’s passing on of a cost hike to consumers could have been bypassed by steel companies by cheaper imports, but that option now does not look so lucrative because of the weak rupee.
For months now, Indian companies have been trying to maintain a balance between iron ore imports and the use of domestic ore, but the rupee drop has ensured that this has become an even more delicate task.