Sharp hike in coking coal prices to hit steel making costs globally
Owing to leveraged balance sheets of large steel companies, the debt protection metrics of the industry are expected to remain depressed.Rakhi Mazumdar | ET Bureau | December 03, 2016, 14:57 IST
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KOLKATA: A sharp spike in international coking coalprices is set to hurt profitability of domestic steel players, particularly those using blast furnace route for steelmaking, in the fourth quarter of the year and is likely to offset the benefits from protection measures. International contract prices of benchmark low volatile premium hard coking coal (HCC) for Q3 FY2017 have been settled at US$200/tonne, showing a 116% quarter-on-quarter increase.
Moreover, given that spot prices of premium hard coking coal have steadily increased since October 2016 from US$213/tonne to US$309/tonne at present, contract prices in Q4 FY2017 are poised to be settled at an even higher level than US$200/tonne, ratings agency ICRA said in its latest report.
“Cost of steel production for domestic blast furnace players will increase by around Rs 5,750/tonne in Q4 over Q3 of FY2017 due to doubling of coking coal prices, Jayanta Roy, Head - Corporate Ratings, ICRA said. “As a result, the benefits from trade protection measures, which helped hot rolled coil (HRC) prices recover after February 2016, are likely to largely disappear after the end of Q3 FY2017,” he added.
As per ICRA’s estimates, gross contribution levels of domestic blast furnace players in Q4 FY2017 are likely to dip by around Rs 4,000/tonnefrom the Q3 FY2017 levels, unless the increased coking coal costs are accompanied by commensurate price hikes by steel makers.
However, given the muted demand outlook in the near term post the currency demonetisation, ICRA believes that steelmakers will only be able to partially pass on such cost increases, in turn putting pressure on their operating profit margins in Q4 FY2017. Additionally, due to the leveraged balance sheets of many large steel companies, the debt protection metrics of the industry are expected to remain depressed in the near term.
KOLKATA: A sharp spike in international coking coalprices is set to hurt profitability of domestic steel players, particularly those using blast furnace route for steelmaking, in the fourth quarter of the year and is likely to offset the benefits from protection measures. International contract prices of benchmark low volatile premium hard coking coal (HCC) for Q3 FY2017 have been settled at US$200/tonne, showing a 116% quarter-on-quarter increase.
