Economy

Aussie floods may dent Indian steel-makers profits: Crisil

PTI Mumbai | Updated on February 01, 2011

The profitability of Indian steel producers may decline by 4-5 per cent in April-June as prices of coking coal, a key input in steel manufacturing, has gone up by $ 40-50 per tonne due to floods in major producing region Queensland, Australia, according to a study.

According to a study by research and rating firm Crisil, the operating margins of steel makers will decline in the April-June period as the floods will affect the import of coking coal.

“Coking coal accounts for about 45 per cent of the raw material costs of non-integrated steel producers in India. The run in coking coal prices will affect the margins of these producers, who are already vulnerable to an expected increase in iron ore prices over the next quarter,” Crisil’s Head (Research), Mr Manoj Mohta, said in a statement.

Queensland, which is badly hit by recent floods, accounts for 40-45 per cent of the world’s exports of coking coal.

The disruptions in supply due to floods have driven coking coal spot prices up by $ 40-50 per tonne to $ 280-290 per tonne, the study stated.

These higher prices will flow through into the operating margins of India’s non-integrated steel producers, who import their entire requirement of coking coal for the April-June quarter.

Integrated steelmakers, that constitute 25-30 per cent of India’s steelmaking capacity, will be shielded from these increases as they source all of their iron ore, and a large part of their coking coal, from captive mines, the study said.

The effect of rising coking coal prices will have its impact starting April, when steel players enter into new contracts with mining companies.

Reflecting the sharp increase in spot prices, coking-coal contract prices for the April-June quarter will rise by 15-20 per cent q-o-q to $ 260-270 per tonne.

Steel prices, which are likely to increase by $ 20-30 per tonne during the quarter, will not offset the pronounced increase in coking-coal cost, the report added.

Published on February 01, 2011

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