[T.S.R:16768] India Steel: Coked Out

Coking coal prices moving north — While steel producers globally appear less 

concerned near term, longer-term uncertainty remains. Spot coking coal prices 

have moved to ~ US$260/t from ~225/t at the end of December. If damage to the 

Queensland rail system is substantial, quarterly contract prices could move 

beyond $300/t.

 Impact on the Indian steel producers — The coking coal price hike will have an 

impact on margins of all the major steel companies if they are not able to pass on 

the cost hike as Indian steel companies have hardly any captive coking coal. The 

range of integration is ~0-15% for the major steel players. 

JSW Steel's profits would be most sensitive to coking coal 

price changes. 

Coking coal inventories — Major coking coal importing countries are Japan (26%), India (17%), China (14%), South Korea (11%), Taiwan (2%), Europe (15%), Brazil (6%). Most steel producers have ~40-60 days inventory and are not worried yet. The Japanese blast furnaces have ~2 months inventory and would be willing to buy coal from North America if higher steel prices justify the same. Korean steel mills have 40-60 days inventory and can source coal from China and Canada. The Indian producers have ~2 months inventory; European producers ~4 weeks.

Queensland: ~55-60% of global exports — The unprecedented rains and floods have led to nearly all Queensland coal producers declaring force majeure. All but one rail system in the region has been impacted. Queensland accounts for ~55-60% of the global seaborne coking coal market (~250mt in 2010E). While the extent and period of disruption are hard to quantify at this point, our global commodities team believes that Citi's 18mt deficit forecast for 2011 is likely to be much higher once damage to mines/rail infrastructure is taken into account.

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Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Nothing in this article is, or should be construed as, investment advice.

 

 

 

 

 

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