Steel cos face price hit as flood turns Australian coal costlier

Santanu Sanyal Kolkata | Updated on November 09, 2017 Published on January 07, 2011

The country's steel plants using Australian coking coal must be ready to cough up higher prices for the second quarter contract. This follows devastating floods in the Australian state of Queensland halting exports from the mines accounting for an estimated 50 per cent of the global coking coal capacity.

Inability to meet contracts

The heaviest summer rains yet recorded have crippled the export infrastructure in Queensland. The mining companies have declared force majeure, effectively suggesting that they will be unable to meet supply contracts due to events beyond their control. What is causing concern is that even if the mines resume production after some time, the rail and port infrastructure damaged by the torrential rain will take a much longer time to restore.

The coking coal prices are set in quarterly contracts between miners and steel makers. Most contracts have already been settled for the January-March period, with benchmark Australian coking coal prices agreed at $225 a tonne, the second highest ever. The analysts and miners say the recent events will push up the second quarter price significantly.

The apprehension is not without basis. The spot price of coking coal is heading from a level of $246 to $300 a tonne and likely to rise further and this may be reflected in the next quarterly contracts.

Steel Authority of India is projected to import an estimated 10.5 to 11 million tonnes of coking coal this year. Tata Steel meets 55 per cent of its requirements by way of imports, mostly from Australia. To produce a tonne of hot metal, the Jamshedpur plant of Tata Steel needs about 0.9 tonne of coal and the plant's present hot metal capacity is close to seven mt annually. The supply disruption in coking coal in Australia along with weather-related problems in Indonesia and Colombia is also boosting the price of lower-quality thermal coal used for power generation. Last week, thermal coal prices jumped 5.5 per cent , reaching a two-year high of $129.25 a tonne.

Imports affected

The power houses are projected to import about 45 metric tonnes (mt) of coal this fiscal, like to rise to 60 mt in the next fiscal. NTPC alone is projected to import an estimated 14 mt. Among other importers are Maharashtra State Power generation, Reliance Power, Jindal Steel & Power, Adani Power, Torrent Power and Lanco.

In 2009-10, the total coal import to the country was around 74 mt, likely to exceed 80 mt in the currently fiscal and projected to reach the level of 110 my in 2012, according to informed sources.

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Published on January 07, 2011
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