Increased costs of coal may hinder the debt reduction strategies of Indian steel manufacturers and, if input prices persist at their current levels, the sector’s leverage could regress to the levels seen in 2021, according to a report by S&P Global Ratings on Thursday, February 15.
“We no longer think India's leading steel companies will shed debt in the coming fiscal year. Instead, debt should remain at the same level, due to narrower steel spreads that will feed into cash flows," the rating agency said in the report.
According to the report, its metallurgical coal price assumptions for 2024 have been increased to $270/mt from $220/mt.
The primary drivers behind this surge are limitations in supply from Australia, heightened tensions in the Red Sea region, and robust demand from India and other markets outside of China. Notably, average metallurgical coal prices experienced a significant 25 percent increase quarter on quarter during the last three months of 2023.
“Our price assumptions are, however, lower than the average price of $300/mt in 2023 and the current spot price of $315/mt. This is because we anticipate supplies from Australia will improve in the second half of 2024 with the opening of several new mines, especially in the states of Queensland and New South Wales," the report said.
“India steel prices will strengthen over the next year, in our view, but not enough to match the rises in input costs. As a result, we estimate our adjusted consolidated debt of major steel producers at INR 2.1 trillion ($25.29 billion) as of March 31, 2025. This is about INR 150 billion ($1.81 billion) higher than our previously anticipated level,” the report said.
The research firm anticipates that India will add 15 million mt of steel capacity by mid-2024. This will increase its total installed capacity to 170 million mt.