Spot prices of coking coal, a key ingredient in steel making, are expected to soften below $250 a tonne (around Rs 14,000) by December 2012, on flagging demand of the raw materials in Japan and China, the two biggest consuming nations.
Prices are currently ruling at $270-280 per tonne in the spot market and they are expected to drop by $30-40 a tonne amid global macro-economic uncertainties that have hurt demand for the commodity, according to analysts. Contract prices of coking coal were in the range of $230-240 per tonne.
“The major factors contributing to the downward price projection for coking coal include economic uncertainty, Euro zone crisis and fluctuating Chinese demand, though in the longer run, the market for coking coal is expected to remain robust,” Pukhraj Sethiya, manager-energy (coal and mining) of accounting and consulting firm PricewaterhouseCoopers (PwC), told Business Standard in an emailed response.
Japan, the biggest recipient of sea-bound coking coal, recorded a year-on-year drop of 19 per cent and 12.6 per cent in demand in April and May, respectively. The island nation's May imports were, however, up 21.3 per cent at 6.12 million tonnes (mt).
“The recovery in the coking coal market has to be led primarily by Japan. But, the signs are not very encouraging as of now,” said Ganesan Natarajan, president and chief executive officer of Ennore Coke. “A few Japanese steel makers have shifted their base to Korea after the nation was ravaged by tsunami. Coking coal imports by Japan are set to fall to 65 mt in 2012 from 73 mt in the previous year.”
Natarajan ruled out any upsurge in price movements of coking coal till the end of December this year. “Globally, crude steel output is not seeing the growth it is expected to. Chinese economy is also decelerating and this is bound to dent coking coal shipments.”
Ennore Coke, which manufactures metallurgical coke, is buying coal from the spot market instead of clinching long-term contracts with suppliers owing to price volatility.
“Japan is still rebuilding its devastating economy and infrastructure and it is expected to increase steel production as well as consumption. Price level of coking coal shall depend on the overall demand-supply situation in the global market, where Japan will have a large role to play,” said PwC’s Sethiya.
“China is one of the largest consumers of coking coal and any fluctuation in Chinese demand impacts the international thermal coal market significantly. Thus, if Chinese steel mills reduce production, it will certainly have impact on global metallurgical coal prices,” he said.
China's coking coal import order has remained sluggish till June-end, with its economic growth contracting. The country, the second biggest importer after Japan, had imported 44.6 mt of the commodity in 2011.
Price movements of coking coal are also bound to impact India, which trails only Japan and China in volume of imports. Industry sources have pegged the domestic steel making industry's import requirement of coking coal at 36.8 mt in 2012-13.
“Currently, import accounts for more than 50 per cent of the coking coal consumption in India. In the future, as steel production increases, this import dependence is expected to increase, and thus, any change in international coal prices impacts Indian steel manufacturers hard, where coking coal accounts for more than 30 per cent of the production cost,” said Sethia.
