Prices of Coking Coal are Expected to Rise in the Up-coming Months and How this will Impact the Steel Companies
Coking coal prices which is an important component in steel manufacturing are bouncing back and recovering and is expected to persist to push margins of steel corporations for the remaining part of the year.
The market reports suggest that once there was a fall in the Australian coking coal prices for nearly two months and reaching a one-year low point of USD 190 per tonne during the first week of August 2022, it soared by more than 40 percent to USD 270 per tonne.
There is an anticipation that the coking coal prices in Australia are projected to move up to USD 300 to USD 330 per tonne in the Quarter ending in December 2022, while there are some market experts who are indicating that the prices may move as high as USD 350 per tonne.
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In addition, the market experts also mentioned that refilling of coking coal primarily by the dealers or traders on the beliefs that there will be a resurgence in the demand for steel, has aided to drive up the prices recently.
As per the Australian rail firm Aurizon, Australia has no coal on the floor that is waiting to be railed to port in Queensland or New South Wales, while the mining companies are struggling to acknowledge the all-time high thermal coal prices.
Moreover, Aurizon is estimating that it will be able to draw more coal during 2022-2023 as compared to the 192 million tonnes that turned in the 2021-2022 to June 30, 2022. Such a scenario emerged since the coal companies are working through the changes in the mine strategies intended to heighten the production capacity in order to fulfil the robust demand for Australian coal.
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Based on daily trend, the coking coal prices have surged by more than USD 80 per tonne during the August 2022 month. As a result of this there would be a rise in the cost of over USD 60 per tonne in the steel manufacturing via the course of blast furnace in case rest of the things remains the same.
The regular coking coal price for a purchaser in India would be roughly USD 200 per tonne more during Q2FY23 relatively to Q2FY22, while contemplating a two-month purchasing lead time for coking coal. This would in turn result in the pushing the cost upward of nearly USD 150 per tonne for steel.
Several industry experts have comprehended that there will be a margin shrink for the quarter concluding in September 2022, however, it emerges that there will be a bit of respite for the steel sector from the perspective of cost increase even during the quarter culminating in December 2022.
The steel producing companies’ Quarter 3 margins would come under stress due to the rising prices of coking coal (expected to last till winters) and decreasing prices of steel.
It seems that the soaring coking coal prices is continuing to be an issue for the steel industry and might not change in the upcoming months. Although the prices had dampened considerably towards the close of the Quarter 1, April-June 2022, indicating that the burdens of inflation would reduce.
To discuss further, there is an anticipation by Tata Steel that the margins would compress for its Indian and European segments during the Quarter 2 of 2022 as the prices for coking coal had begun to drop slowly just in July 2022. This effect of decrease in prices would be experienced with a pause of one or two months that is, September or October.
Nevertheless, the prices for coking coal began to surge again exactly during the time when the industry estimated to find a little respite from September 2022 onwards.
The per day price has risen by more than USD 80 per tonne during the three weeks closing in August 2022, even though the per month median prices continue to depict a downward trend from March 2022 to August 2022.
Considering the price rise market scenario, it is witnessed that there is no major negative impact on the demand for coal. As per the International Energy Agency (IEA) there will be a marginal increase in the consumption of coal during 2022. IEA also mentions that the worldwide coal consumption is estimated to surge by 0.7 percent in 2022 which is 8 billion tonnes.
The international demand for coal has bolstered in the present year owing to the increasing prices of natural gas, as this has strengthened the switch over from gas to coal in several countries along with the economic development and the expansion of the consumption of electricity in India.
Similarly, in European Union the consumption of coal is projected to grow by 7 percent in 2022 as compared to the 14 percent hike in 2021. The primary reason behind this is the demand from the electricity industry as coal has been progressively utilised to substitute gas, which is facing shortage of supply and the consequent price surge in the wake of Russia-Ukraine war.
As per Procurement Resource, the prices for coking coal are expected to recover and persist to drive up the margins of steel manufacturing companies for the rest of 2022. It is projected that the prices of Australian coal would take an upward trend to USD 300 to USD 330 per tonne in the Quarter closing in December 2022. Additionally, restocking of coking coal mainly by the dealers considering a resurgence in the steel demand has supported the increase in the prices in the present times. The daily trend of the market suggests that the coking coal prices is rising by over USD 80 per tonne in August 2022. Due to this there will be a spike in the steel production cost by more than USD 60 per tonne. Despite the price hike of coking coal, it is anticipated that the global demand for coal would rise owing to the rising prices of natural gas as well as the economic growth of India.