Coal news and updates

Coking coal supply talks at 6-year low prices in India?

Tata Steel Ltd, Steel Authority of India Ltd. and JSW Steel Ltd are in separate talks with suppliers to sign coking coal contracts at the lowest price in six years, people with knowledge of the information said.

India’s top three steelmakers are negotiating for deliveries at $125 a metric ton for the month and quarter starting April, said three people, who asked not to be identified pending a settlement. The price is 13 percent less than the $143 for the three months ending March 31 and the lowest since 2008, when annual contracts were the norm.

Increasing supplies from Australia and North America and a decline in output from pig-iron mills in China, Japan and South Korea have pulled down spot prices of coking coal and are set to impair benchmark contracts rates. A respite from floods, which wrecked Australia’s Queensland in 2010 and 2011 and sent prices soaring, has boosted shipments from the world’s biggest coking coal exporting region to a record.

“Low-cost producers, particularly BHP Billiton Ltd., have been pushing volume, leading to a surplus in the coking coal market,” said Daniel Morgan, an analyst for UBS AG in Sydney. “A seasonal pick up in steel production rates in North Asia offers some support for prices but the market remains very well supplied from all key regions.”

Metallurgical coal production at BHP increased 22 percent to a record 22 million tons in the six months ended Dec. 31, according to a Feb. 18 statement.

“Discussions are underway,” Tata Steel spokesman Kulvin Suri said in an e-mail, without giving price details. Arti Luniya, executive director at Steel Authority’s coal import group, declined to comment, while JSW Steel spokesman Manish Mallick didn’t respond to an e-mail seeking comment.
Lower Costs

Paying less for coal, a key raw material, would help India’s steelmakers reduce their input cost and boost earnings at a time when demand from automakers to builders has flagged. The three companies consume almost half of India’s 40 million tons of metallurgical coal imports. Tata Steel’s India business and Steel Authority are set to report their smallest profit margins in more than a decade for the year ending March 31, while JSW’s earnings have lagged estimates for five consecutive quarters.

“We’re both a seller and a buyer of coking coal and we are looking at a range of $125 to $135 a ton for the quarter,” said K. Rajagopal, group chief financial officer at Jindal Steel & Power Ltd. The New Delhi-based company bought a controlling stake in Corrimal, New South Wales-based Wollongong Coal Ltd., which operates two coking coal mines in Australia and produces about 1.5 million tons a year.
Supply Glut

Spot coking coal prices in China have declined 20 percent to $107 a ton since Dec. 31, according to data from the Freight Investor Services index on the Bloomberg. A supply glut is estimated by Morgan Stanley to be about the equivalent of 3 percent of annual seaborne trade. A reduction of at least 15 million tons is needed to restore tightness, Sanford C. Bernstein & Co. said in a report last month.

Tata Steel in India buys about half of its coking coal requirement from external suppliers. Steel Authority imports more than 70 percent, while JSW buys almost all of its needs.

“A fall in coking coal prices will be a big boost for local steelmakers because they’ve been struggling to sell,” said Giriraj Daga, a Mumbai-based analyst at Nirmal Bang Equities Pvt., who has a sell rating for all the three producers. “The demand cycle may not pick up before the end of the general elections.”

India’s federal elections are due to start April 7.

Source: Bloomberg