The production price of India’s steel producers utilizing the blast furnace route would stay contained in the close to term due to China’s ban on Australian coking coal, India Ratings and Research (Ind-Ra) stated.
Accordingly, the Chinese move will lead to softer coking coal costs which shall straight help EBITDA per tonne accretion of about Rs 2,600 more than FY21 for corporations utilizing the blast furnace route.
“Such companies are likely to have reduced cost of steel production by around Rs 1,800 per tonne YoY in 2HFY21, supported by the reduced cost of coking coal per tonne of around Rs 7,300,” Ind-Ra stated in a report.
As per Ind-Ra, China’s ban has led to adverse bias on coking coal costs.
It expects Australia premium tough coking coal (HCC) CNF costs would be about $120 per tonne more than remaining FY21, except for any climate-associated provide disruptions in Australia.
“Despite China’s healthy steel production growth of 7 per cent YoY in the first seven months FY21, its coking coal imports have significantly reduced by 12 per cent as against an increase of 14 per cent YoY in FY20, reflecting the country’s increased reliance on domestic coking coal.
“Considering the low coking coal imports by China and a attainable additional reduction amid China’s ban on Australian coking coal, an excess provide would make-up unless Australian miners lower their output significantly.
“Hence, Ind-Ra understands coking coal prices would remained soft although other major coking coal importers such as India, Japan and South Korea’s production levels have recovered them to pre-covid levels,” Ind-Ra added.
Lately, China and Australia have been the biggest coking coal trade partners in the globe.
China’s imports and Australia’s exports, respectively, type 40 per cent and 65 per cent of the world’s general coking coal trade.
“As Chinese end-users are likely to increase their domestic coal production or import coking coal from countries such as Indonesia, Russia, Canada and the US, Indian buyers would gain more bargaining power with Australian coking coal.
“India and China have been the biggest buyers of Australian coking coal, competing with each and every other and composing 25 per cent and 24 per cent respectively, of Australia’s total metallurgical coal exports.”