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CFR indexing by PRAs crucial for risk management strategy

A country like India, which imports a significant portion of its coking coal, the Cost and Freight (CFR) index is a critical component of this risk management strategy, as it provides a transparent and market-reflective benchmark for contracts, according to a panel discussion by industry leaders during panel discussion organised by the Indian Steel Association (ISA).

While, price reporting agencies (PRAs) are the cornerstone of the modern coking coal indexing system. These independent firms are responsible for collecting market data and producing price assessments and indices.

For major steel makers in the country the delivered cost at the Indian port is the most relevant metric for its bottom line. This makes the CFR India index a crucial benchmark for pricing contracts, negotiating with suppliers, and managing the total landed cost of coking coal.

The use of indices, particularly CFR India, becomes a practical and essential tool for a company with such a massive and complex supply chain.

“With more usage of domestic coking coal, CFR index will assume greater importance for the Indian market,” said John Howland, Vice President, Coal, Metals and Mining, McCloskey by Opis.

Historically, coking coal prices were determined by long-term, quarterly contracts between major producers and steel mills, often based on a single benchmark set through bilateral negotiations. However, increasing market volatility, driven by supply chain disruptions, geopolitical events, and demand shifts, necessitated a more dynamic pricing mechanism, this is where the role of coking coal indexing holds importance.

“In a global market where a handful of countries and companies dominate the coking coal supply, the role of PRAs in providing independent and robust price signals is more critical than ever. They have effectively replaced the old, opaque system with a dynamic, data-driven one, offering greater stability and risk management for importers like India,” said the participants in the panel.