Domestic mills experimenting with various coal blends to reduce price volatility and trim costs
Pune, April 10, 2019: Amidst increasing trade tensions and a slower pace of global economic growth, steel prices have weakened from the CY2018 highs. However, interestingly, coking coal prices have not followed suit, and remained at elevated levels, nibbling at the margins of steelmakers. As per findings of ICRA Research’s latest note on the topic, this apparent decoupling between coking coal and steel prices is unlikely to sustain over a longer timeframe, and coking coal prices are expected to moderate going forward.
At prevailing prices, some large global coking coal miners are achieving earnings before interest, tax, depreciation, and amortization (EBITDA) ranging from US$70-100/MT of coal sold which comes close to the EBITDA levels achieved by some large integrated global steel players. Supported by the high-profit levels of miners, capital spending in expansion projects is expected to pick-up.
Commenting on the trend, Mr. Jayanta Roy, Senior Vice-President, and Group Head – Corporate Sector Ratings, ICRA says, “A natural corollary of high coal prices is the response from miners. We have seen this happen in CY2018, when Australian coking coal exports increased year on year by 5 million tonne, supported by buoyant steel and coking coal prices. This trend of rising exports from Australia is likely to continue in CY2019 as well. We expect coking coal supplies from some of the major exporting nations like Australia, Indonesia, Mozambique, South Africa, and Canada to increase by over 10 million tonne in CY2019”.
As per the latest steel production projections from the World Steel Association, seaborne coking coal demand is not expected to significantly increase from major steel-producing nations like China, Japan, South-Korea and the European Union. For China, the largest global steel producer, bulk of its incremental production is expected to come from the electric arc furnace route which is not dependant on coking coal. India would be the sole large steel producing nation which is expected to register a healthy steel production growth in the near term. With India’s coking coal imports increasing at a rate of 5-6 mt annually, the seaborne coking coal market is expected to be in oversupply in CY2019, which in turn would weigh down on prices.
In their effort to trim costs and partly mitigate the impact of high volatility in seaborne coking coal prices, domestic mills have been experimenting with various coal blends. In this context, adds Mr. Roy, “Domestic steelmakers are experimenting with a higher share of semi-hard coking coal and a corresponding lower share of costlier hard coking coal in making coke. Additionally, mills are increasingly investing in upgrading their furnaces to allow the use of pulverised coal injection (PCI), which is a cheaper alternative to coke, and which can partly replace coke in the blast furnace. Moreover, Indian mills are diversifying their coal sourcing, as reflected in the increasing share of coking coal sourced from across the Atlantic, and a corresponding lower share from Australia”. A more longer-term trend that the ICRA note also highlights, in both India and other large steel-producing nations, is that blast furnaces are increasingly getting larger, which comes with the benefit of lower fuel rate and better efficiency norms.
Your email address will not be published. Required fields are marked *
Save my name, email, and website in this browser for the next time I comment.
Sign me up for the newsletter!
Notify me of follow-up comments by email.
Notify me of new posts by email.
CRATES TO CLASSROOMS: JAGUAR LAND ROVER MAKES 700 SCHOOL DESKS FOR CHILDREN IN RURAL INDIA
Accutest Biologics gets global Honour, India’s First Standalone Facility gears up to leverage growing global drug demand
Digit SQUAD Tech Day hosts the biggest tech influencers gathering in India
Hot Muggs launches `India Heritage’ traditional drinkware range with a twist
Subvention Schemes Ban – Only 8% of Total 280 Housing Projects Launched in Q2 2019 Affected
2014 The Global Indian New Network (TGINN)