The production costs of Indian steel producers using the blast furnace route will remain limited in the near term due to China’s ban on Australian coking coal, India Ratings and Research (Ind-Ra) said in a report on Monday, December 28.
Accordingly, the Chinese move will lead to softer coking coal prices which shall directly support earnings before interest, tax, depreciation and amortization (EBIDTA) per ton valuation of around INR 2,600/mt in the current fiscal year for companies using the blast furnace route, the Ind-Ra report said.
The agency said it expects the Australian premium hard coking coal price to be around $120/mt CFR over the remaining months of the current fiscal year.
Despite China’s healthy steel production growth of seven percent during the first seven months of the current fiscal year, its coking coal imports fell slightly by 12 percent against an increase of 14 percent during the corresponding period of the previous year, reflecting the industry’s increasing reliance on domestic coking coal sources, the agency said in its report.
“Considering the low coking coal imports by China, and the possible further reduction following the ban on Australian coking coal, an excess supply will build up unless Australian miners reduce their output,” the report said.
As Chinese end-users are likely to increase their domestic coal production or increase imports from countries like Indonesia, Russia, Canada and US, Indian importers will gain more bargaining power with Australian coking coal suppliers,” the report added.