The floods that are ravaging Queensland in Australia will impact the profitability of Indian steel producers, finds a study by CRISIL Research. The area affected by the floods accounts for 40-45 per cent of the world's exports of coking coal, a key input for steel manufacture. The disruptions in supply because of the floods have driven coking coal spot prices up by USD40-50 per tonne, to USD280-290 per tonne. These higher prices will flow through into the operating margins of India's non-integrated steel producers - who import their entire requirement of coking coal - for the April-June quarter. The increased coking coal prices will drive these players' margins down by 400-500 basis points, compared to the January-March quarter, as increased spot prices will result in higher contract rates for the quarter.
"Coking coal accounts for about 45 per cent of the raw material costs of non-integrated steel producers in India. The run in coking coal prices will affect the margins of these producers, who are already vulnerable to an expected increase in iron ore prices over the next quarter," says Manoj Mohta, Head, CRISIL Research. CRISIL
Industry Research's report on the Indian logistics industry provides an overview of the various modes and infrastructure segments, in addition to an assessment of the supply-chain cost structure in nine non-bulk segments and third-party logistics (3PL) opportunities in India. The report will present a segment-by-segment view of the state of the industry in terms of its size, growth drivers and future outlook, business models, nature of the
Industry analysis, and Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis for the segment. Integrated steelmakers, who constitute 25-30 per cent of India's steelmaking capacity, will be shielded from these increases because they source all of their iron ore, and a large part of their coking coal, from captive mines.
The effect of rising coking coal prices will make itself felt starting April, when steel players enter into new contracts with mining companies. Reflecting the sharp increase in spot prices, coking-coal contract prices for the April-June quarter will rise by 15-20 per cent q-o-q to USD260-270 per tonne. Steel prices, which are likely to increase by USD20-30 per tonne during the quarter, will not offset the pronounced increase in coking-coal cost. Operating margins of steel producers in India will therefore decrease during the April-June period.
