'Indian Mills Should Adopt JSM Strategy Of Joint Coal Procurement'

Coking coal as an input material for steel gains prominence as the majority of steel produced in India is done through the blast furnace route. However, the country is not endowed with this premium coal to the extent required.

Thus to sustain operations, Indian steel mills are heavily dependent on coking coal imports from countries like Australia, the US and Canada. This makes coking coal prices an important barometer for profitability of steel mills in India. High coking coal prices contract margins of the mills and thus make timely procurement of coking coal an important strategic objective.

In this context, experts are of the opinion that coking coal prices are expected to moderate going forward and are unlikely to sustain at the current high levels. With steel prices sliding from the highs of calendar year 2018 due to trade tensions and a slower pace of economic growth, coking coal prices are yet to follow suit, putting pressure on the margins of steelmakers.

However, this is not likely to continue in the midterm.

At prevailing prices, some large global coking coal miners are achieving higher earnings. Supported by the high profit levels of miners, capital spending in expansion projects is expected to pick-up. A natural corollary of high coal prices is supply response from miners. For instance, in 2018, Australian coking coal exports increased year-on-year by 5 million tons. This trend of rising exports from Australia is likely to continue in 2019 as well. It is expected that coking coal supplies from some of the major exporting nations like Australia, Indonesia, Mozambique, South Africa, and Canada will increase. In contrast, China’s coking coal imports are largely flat and India’s imports are increasing only at a modest rate. Thus, the seaborne coking coal market is expected to be in oversupply in 2019, which in turn may weigh down the prices.