Fresh trouble for the steel industry is brewing with coking coal prices rising due to production cut announced by one of the largest mines in Australia.
Steel companies have been maintaining monthly imports despite slowdown in demand, impacting their profits. India Ratings and Research (Ind-Ra) expects coking coal prices to remain elevated on near-to-medium term.
Another area of key concern is the auction of merchant mines by March 2020. Any material delay in the due process could lead to disruption in domestic steel production in FY21, said the rating agency.
Iron ore prices have risen 48 per cent to $135 a tonne in July largely due to Brazil-based Vale SA, a global leader in iron ore and nickel production, cut its production on account of the collapse of a dam in January. However, in July, Brazilian supply showed signs of recovery and this revival shall further be fuelled by Vale resuming operations at the closed mines.
Moreover, considering the depreciation of Chinese currency due to levy of new tariffs by the United States (US) and with mills reluctant to increase iron ore inventories owing to the muted demand, Ind-Ra expects iron ore prices to fall in coming months.
On the other hand, steel demand is expected to revive from the affordable housing and infrastructure sectors, bolstered by various government schemes and projects. However, demand from the automobile sector is likely to be muted.
Overall, India Ratings expects fundamentals of the steel sector to remain weak this fiscal with the risk of softening of prices, elevated raw material prices and weak demand. However, impact of these on Indian companies would be partially offset by better demand, it said.
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