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The profit margins of Indian primary and secondary steel producers will be influenced by the diverging prices of coking coal and thermal coal in the second half of the current fiscal year (October 2023-March 2024), local media reported.
Major integrated enterprises such as Tata Steel, JSW Steel, AMNS India, and SAIL will face the challenges of rising prices of hard coking coal, primarily imported from Australia, while the smaller players using sponge iron or the electric arc furnace method with thermal coal as their raw material will benefit from lower costs.
The average prices of long and flat steel products may also impact the margin outlook. Long items are expected to see higher prices in the second half of the fiscal compared to the April-September period, but flat products to have slightly lower prices over the same period.
From October to next March, blast furnace operators are anticipated to experience a sequential margin decline of 135 basis points, while secondary producers to see an increase of 75 basis points, according to a research note by rating agency Icra.
Blast furnace operators heavily rely on coking coal as a reducing agent to convert iron ore into metallic iron. However, due to limited domestic supply in India, these companies are dependent on imports.
It is worth noting that the supply constraints in Australia led to an unexpected surge in spot prices of premium hard coking coal. Within a short span of three months, the prices increased by 50-55%, reaching a peak of $363/t FOB Australia in mid-October 2023, said Jayanta Roy, senior vice president of corporate sector ratings at Icra.
(Writing by Riley Liang Editing by Emma Yang)
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