High cost of coking coal likely to force steelmakers to hike prices, cut output

India's secondary steelmakers are either planning to pass on the high cost of metallurgical coking coal to their customers or cutting down production as the price of coal is at an all-time high amid a global supply crunch.

"Our cost of production has gone up by around Rs 20,000 a tonne in the past six months due to high coking coal prices. We are in talks with our customers to renegotiate the contracts with a price hike," RK Goel, managing director of Kalyani Steel, told ET. However, he said, the biggest consumers are the auto companies, which are still reeling under the pressure of chip shortage.

"Iron price softening is a positive for the industry. However, with coking coal prices constantly moving up, the benefit might not be huge for the steelmakers," said Goel.

As per a recent report by S&P Global Platts, premium low-volatile hard coking coal prices surged 100.3% quarter-on-quarter to $388.50 per mt FOB (freight on board) Australia at the end of the quarter to September while PLV CFR (cost and freight) China rose 95.4% over the same period to $603.75 per mt.

Metallurgical coking coal is a significant raw material for steel players. Producers who depend on thermal coal to run their electric arc furnaces are also witnessing tight supply and high prices.

"Coal India is prioritising the supply towards power companies, so we aren't getting our regular supplies. We might take a production cut to an extent of 5-8% this running quarter," a senior executive from a steel re-rolling mill in Chhattisgarh said on condition of anonymity.

Steel players depend on thermal coal from the state-owned Coal India and import coking coal, which is used in the blast furnaces, from countries such as Australia, Poland, Japan and Korea.

"We are looking at the export market now, even though demand has picked up in India, passing such a price hike may not be feasible," said the executive. According to analysts, global supply tightness intensified in the September quarter, which was reflected in the decline in observed spot cargoes.

"S&P Global Platts observed 4.8 million mt of spot transactions for seaborne premium hard coking coal in Q3, down from 5.3 million mt in Q2 and down sharply from 6.2 million mt in Q3 2020," said the research report by S&P. According to industry experts and analysts, the primary steelmakers are better placed as some players have already raised prices since the beginning of October.