Domestic rating agency India Ratings and Research (Ind-Ra) today said that volatile coking coal prices may keep the steel sector spreads under pressure in the ongoing financial year.
Spreads, in commodity parlance, is the difference between price and raw material cost.
"The volatility in input cost, mainly coking coal prices, is likely to keep the steel sector spreads under pressure in FY18," Ind-Ra said in a statement.
The price of coking coal, a key raw material in steel making -- restarted its upward movement in last month after softening from the elevated levels of November last year.
Ind-Ra said that it is of the view that the recent increase in coking coal prices is temporary and it may soften in the near-term, however, it's unlikely to correct significantly in FY'18.
"The softening of input cost would be a key determinant for the steel sector's profitability. However, price of coking coal has surged by 100 per cent to around USD 310/t (tonne) in April 2017 m-o-m," it said.
This, it added, may not be fully passed on and could impact profitability in the second quarter of the ongoing financial year, as for domestic steel producers it takes around 2-3 months from order to consumption.
The sudden increase in the prices of coking coal in April 2017, is on account of the disruption in exports from Australia -- a major exporter of coal, due to a cyclone which damaged railway lines connecting mines.
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