Domestic steel companies may face immense margin pressure if coking coal contracts are sealed at $330 a tonne for the April quarter, an increase of 47 per cent over the last.
Resource major, Anglo American, had struck a deal with Japanese steel mills (JSM) for the April-June quarter at $330 a tonne, reports indicated, though there was no confirmation from either side.
The JSM pricing is normally taken as the benchmark for the industry.
Indian steel makers are currently facing a slack in demand, one of the reasons behind a roll-over in price this month. Coupled with cost pressure, the margins are likely to be hit significantly.
“Market sales are slow and de-stocking is going on,” an industry representative said. Iron ore prices have also been strong. The industry expects both coking coal and iron ore to remain strong for a while on supply constraints.
“Cost pressures are high. Prices will move upwards in a couple of months,” Uttam Galva Steels director (commercial), Ankit Miglani, said.
Together, coking coal and iron ore account for about 85 per cent of the input cost. Moreover, India imports around 90 per cent of its coking coal imports.
However, over the past couple of months, domestic steel producers have been able to pass on some of the cost increase to the consumers. Since December, prices have increased by about Rs9,000 a tonne. The ruling price of hot rolled coil, the benchmark, for flat products is at Rs38,000 a tonne.
“Deliveries of coking coal under the new contract would come in by April-May. Hence till May we will be using the earlier coking coal which was procured at $225 a tonne. Hopefully by the time the expensive coking coal is used, we will be able to increase steel prices,” Bhushan Steel managing director, Neeraj Singal, said.
“It is a steep rise. This will put pressure on costs and prices will react to this,” JSW Steel, director (commercial and marketing), Jayant Acharya, said.
Also, the industry doesn’t expect such steep prices to remain at this level for more than a quarter.
However, what could add to the woes of the steelmakers is that BHP Billiton is contemplating a monthly contract from quarterly.
