|Subject||Coking Coal Supply Talks Said At Six-Year Low Prices In India|
Tata Steel Ltd, Steel Authority of India Ltd (SAIL) and JSW Steel Ltd are in separate talks with suppliers to sign coking coal contracts at the lowest price in six years, people with knowledge of the information said.
India’s top three steel makers are negotiating for deliveries at $125 a tonne for the month and quarter starting April, said three people, who asked not to be identified pending a settlement. The price is 13% less than the $143 for the three months ending March and the lowest since 2008, when annual contracts were the norm.
Increasing supplies from Australia and North America and a decline in output from pig-iron mills in China, Japan and South Korea have pulled down spot prices of coking coal and are set to impair benchmark contracts rates. A respite from floods, which wrecked Australia’s Queensland in 2010 and 2011 and sent prices soaring, has boosted shipments from the world’s biggest coking coal exporting region to a record.
“Low-cost producers, particularly BHP Billiton Ltd, have been pushing volume, leading to a surplus in the coking coal market,” said Daniel Morgan, an analyst for UBS AG in Sydney. “A seasonal pick-up in steel production rates in North Asia offers some support for prices but the market remains very well supplied from all key regions.”Metallurgical coal production at BHP increased 22% to a record 22 million tonnes in the six months ended 31 December, according to an 18 February statement.
“Discussions are underway,” Tata Steel spokesman Kulvin Suri said in an email, without giving price details. Arti Luniya, executive director at SAIL’s coal import group, declined to comment, while JSW Steel spokesman Manish Mallick didn’t respond to an email seeking comment.
Lower costs Paying less for coal, a key raw material, would help India’s steel makers reduce their input cost and boost earnings at a time when demand from auto makers to builders has flagged. The three companies consume almost half of India’s 40 million tonnes of metallurgical coal imports. Tata Steel’s India business and SAIL are set to report their smallest profit margins in more than a decade for the year ending March, while JSW’s earnings have lagged estimates for five consecutive quarters.
“We’re both a seller and a buyer of coking coal and we are looking at a range of $125 to $135 a tonne for the quarter,” said K. Rajagopal, group chief financial officer at Jindal Steel and Power Ltd. The New Delhi-based company bought a controlling stake in Corrimal, New South Wales-based Wollongong Coal Ltd, which operates two coking coal mines in Australia and produces about 1.5 million tonnes a year.
Supply glut Spot coking coal prices in China have declined 20% to $107 a tonne since 31 December, according to data from the Freight Investor Services index on Bloomberg. A supply glut is estimated by Morgan Stanley to be about the equivalent of 3% of annual seaborne trade. A reduction of at least 15 million tonnes is needed to restore tightness, Sanford C. Bernstein and Co. said in a report last month.
Tata Steel in India buys about half of its coking coal requirement from external suppliers. SAIL imports more than 70%, while JSW buys almost all of its needs.
“A fall in coking coal prices will be a big boost for local steel makers because they’ve been struggling to sell,” said Giriraj Daga, a Mumbai-based analyst at Nirmal Bang Equities Pvt. Ltd, who has a sell rating for all the three producers. “The demand cycle may not pick up before the end of the general elections.
Source : livemint.com
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