Coking Coal Prices To Stay Low?

So what does all the hoopla around Coal India’s huge dividend mean for the overall coal business of India – especially coking coal, which is a key raw material in the production of steel?

It is no secret that Coal India itself had fallen short of its coal production target for at least the past six years due to difficulties in obtaining environmental approvals and other infrastructure issues. Its April-December output of 319.2 million tons was 4 percent less than its target for the period.

The International Energy Agency (IEA) report has, among other things, said coal prices would remain subdued in 2014 in India.

A Reuters report stated that India’s coal imports had gone up 20 percent to 105.8 million tons in April-October 2013 from a year earlier, as power producers turned to Indonesia to help feed new plants.

Regulatory and bureaucratic delays in adding new mines and expanding existing ones had made India the No. 3 importer of coal, even though it sits on what BP ranks as the world’s fifth-largest reserves. Imports, the report added, had gone up 34 percent in 2012-13, and increases were likely to continue in 2013-14, too.

The price of coking coal had declined by around US $10 to $135-$138 per ton compared to previous quarter, mainly on weak demand from China, experts said. Experts in India feel that any decline in coking coal prices will only help steel companies report better margins in the January-March quarter.

What This Means for Commodity Buyers

Well, India’s steel producers are certainly going to be a happy bunch if the reports of coking coal prices remaining down in most of 2014 end up being accurate; but on the flip-side it means that this raw material input won’t be the driver of any steel price rises, were they to come.

by Sohrab Darabshaw