Last Updated : 10 March 2010 at 03:20 IST

Coking coal prices rise to lift steel prices

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MUMBAI (Commodity Online): World’s top coking coal producer BHP Billiton has signed a coking coal deal with Indian steelmakers at $200 per tonne, up 55% from last year’s prices.

This is expected to cause major rise in steel prices in India. If India’s steel prices go up, it will also impact the prices in global markets.

Last year’s benchmark prices were $129 per tonne and were yearly contracts. However, the latest deal is signed only for the first quarter ending June 30, 2010.

The price increase by the Australian company is in line with expectations. Indian steelmakers are largely dependant on imported coal. Tata Steel imports around 30% coking coal, its UK subsidiary, Corus, buys its entire coal from the market. JSW Steel, too, imports 100% coking coal and state-owned Steel Authority of India (SAIL) imports 70% of its coking coal needs.

JSW Steel, India’s third-largest steelmaker, is looking to import 5.5 million tonne of coking coal for FY11 to meet its ramped up production. The company used 4.5 million tonne of coking coal in FY10.

Indian steel companies have already talked about price rises to counter the input cost push. The key question is the extent to which steel producers can pass on the higher-than-expected coking coal price rise to consumers. On an average, global steel prices need to rise 5% to counter this coking coal price rise.

This is the first time that coking coal contracts have been priced in quarterly periods. This indicates the trend for benchmark prices to be reset frequently and so have greater linkage with spot market prices.

The 3 domestic steel companies Tata Steel, SAIL and JSW Steel will be impacted by the coking coal price rise. Tata Steel’s India operations have a high level of self-sufficiency, so cost of production for domestic operations is relatively insulated but its European operations are not. For SAIL the impact will also depend on to what extent Coal India raises the prices (SAIL sources 30% of its coking requirement domestically.