Steel millers have opposed the duty hike proposal on coking coal citing that it will lead to cost escalation of finished product amid sluggish demand. Along with the proposal to include coking coal under a uniform import duty structure of 2.5 per cent for all variety of imported coal, the Union government also raised clean energy cess on usage of the fuel from Rs 50 to Rs 100 a tonne in the budget proposal. Steelmakers estimated it will have considerable impact on their profitability.
“As per our estimate, the new proposals will cost us Rs 25 crore more for this fiscal,” said S P Padhi, former finance director of Neelachal Ispat Nigam Ltd (NINL). The state-based firm buys coking coal worth Rs 900 crore every year.
Coking coal, after conversion into coke, is used as a fuel to produce crude steel from sponge iron and sinter. India buys about 4 million tonne coke and 33 million tonne coking coal every year, mainly from Australia and Indonesia.
NINL has the capacity to produce 1.1 million tonne crude steel, out of which 900,000 tonne is used for producing billets and the rest is sold as pig iron. For each tonne of crude steel, around 800 kg coking coal is required.Trade observers said though the duty is going to affect cost of production of steel makers, they can not pass it on to the consumers.
“The rise in duty is definitely going to affect the cost of production for steel making, but I do not think they will be able to pass it on to consumers given poor demand scenario,” said an analyst with a large stock broking firm based in Mumbai.
During last fiscal, steel producers imported 33.12 million tonne (mt) coking coal, an improvement of 18.26 per cent over the previous comparable period, taking advantage of price slump. Average coking coal prices remained around $111-$118 a tonne throughout 2013-14 in global markets, sharply lower than $140 a tonne in 2012-13. With 7.5 mt shipment, Mormugao was the largest importing port of coking coal, followed by Paradip with 7.0 mt imports.
Vishakhapatnam retained the third biggest importing port slot with shipments of 6.9 mt, data from Indian Port Association showed.India heavily depends upon coking coal imports as its indigenous production meets only a tenth of the requirement. Despite the duty hike, continuously lower pricing of the fuel in global markets since the start of 2014 will cushion the duty hike impact, the analyst said.
Global coking coal prices have been under pressure for last one year or so, as biggest importers such as China and Japan have reduced orders. While China is sourcing coking coal from Mangolia, Japana slashed shipments of coking coal on slower demand from steel units.