Prices of steel inputs decline

But producers say demand intact.

High leverage and demand from China are dampening the price of steel inputs such as iron ore and coking coal, say industry experts. The latest financial turmoil is only partially to be blamed, they say.

In the last fortnight, spot prices of iron ore fines have dropped by about $40 a tonne and coking coal by $20 a tonne. At present, ore prices are hovering at $140 a tonne and coking coal at $240 a tonne.

While the fall in ore prices is driven solely by China, softening of coking coal can be attributed to tightening of China’s monetary policy and the euro zone crisis, say analysts.

“There has been a huge recovery in global demand, including from China, which has led to acute shortages. Since the Chinese government is tightening (monetary policy) and there is a scare in Europe, the recovery might slow down for a while,” said Rakesh Arora of Macquarie Capital Securities.

Arora expects iron ore to settle at about $120 a tonne and coking coal at about $240 a tonne. But, the industry is not overly worried as fundamentals remain unchanged. “The steel production projection for China is 660 million tonnes, so obviously the demand scenario has not changed,” said R K Sharma, secretary general, Federation of Indian Mineral Industries.

According to World Steel Association estimates, China’s crude steel production for April was 55.4 million tonnes, an increase of 27 per cent compared to April 2009. This was also the highest production by the country in a single month.

Arun Jagatramka, chairman and managing director, Gujarat NRE Coke, said coking coal spot prices were not significant as most steel companies had signed contracts. Contract prices for the current quarter were $200 a tonne, compared to $129 a tonne last year.

However, coking coal, largely imported into India, has moved to quarterly contracts and a drop in prices could affect prices for the next quarter. The same could hold for state-owned NMDC, that supplies to most steel companies without captive mines.

NMDC recently indicated that prices could be hiked by at least 90 per cent for Japanese and Korean steel mills when it starts following the quarterly contract system. The export price would be the basis for domestic pricing. In January, it announced a provisional hike of 34-56 per cent, effective April 1, while conveying that the final increase would be effected after the Japan pricing.

However, even if pricing for the next quarter is uncertain to some extent, finished product (steel) and raw material producers are convinced that the demand is intact.