Indian steel mills urge government intervention in coking coal price indexing

India’s steel majors are seeking government intervention to control raw materials prices, primarily iron ore and coking coal.

Mills has flagged issues in the price discovery process of coking coal by international players and has reportedly asked the government to push for a “more realistic” price discovery mechanism. 

Steel makers, through the Indian Steel Association (ISA) – which includes AM/NS India, JSW, Tata Steel, Jindal Steel & Power and PSUs like SAIL and RINL – have called for intervention and action across two key price indexes, namely Platts and Argus Indexation which “remain subjective” in determining coking coal price. 

The two indices do not reflect the actual price, it has been claimed.

Import prices are pegged to Platts and Argus Indexation, which seem “subjective”, it mentioned, adding that “without any actual transaction, index moves up”, the ISA wrote. 

It has been argued that the pricing of a substantial quantity of coal is linked to the average monthly index pricing reported by these firms. That means the price for December will be the average monthly price assessed in November, and so on. 

Further liquidity in the spot market is as low as 4 - 6 per cent, at most 10 per cent, and this small quantity determines the price, especially in India.

Some steel mills claim that the deals between certain coal suppliers and their sister trading companies or trader-to-trader bids and offers with no actual deal are also registered in the index price, thereby impacting the discovery mechanism, including spot prices.

In a letter to the Steel Ministry, reviewed by businessline, the ISA said a very high volatility in the import prices of coking coal was witnessed previously and an increasing trend continues to be a cause of concern.

“This small quantity (available in spot market) is used for publishing of Coking Coal Import Price Indexation, which then becomes the basis for 94 – 96 per cent of long term contract sales,” the ISA wrote in a letter last December, even as it sought intervention that includes options like “initiating a Suo-Moto case under Competition Law”.

Incidentally, Ministry officials say there have been some discussions around having India-specific coking coal price indexation that could help determine long-term contract prices. Some market research firms have also expressed willingness to prepare such an index. But things continue to be at a nascent stage still.

The Ministry did not respond to queries sent by businessline.

Incidentally, India is the second largest producer of crude steel and continues to be amongst the largest importers of coking coal – a key feedstock material. Over the last few months, the price of coking coal moved up by 49 per cent from May to November last year. From $229 per tonne in May, prices increased to $342 per tonne. The highest increase was in October at $365 per tonne.

For December, coking coal prices hovered in the $324-334 per tonne range, while in January beginning they stood at around $334 per tonne and are currently hovering in the $328 per tonne range.

Similarly, iron ore prices across grades have increased in the 29–40 per cent range over the last few months.

India’s Competition Commission, in a recent study, had discouraged iron ore exports. Pointing out that iron ore was a finite, non-renewable natural resource, the Commission said the focus should be on creating a globally competitive steel sector, which will have a multiplier effect on the economy.

As in other sectors, iron ore exports outside India should not be encouraged to generate foreign exchange. In this process, it is also important to adopt the best technologies to benefit low-grade iron ore without reducing the cost competitiveness it maintains. 

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