Tata Steel, JSW Steel, other Indian steelmakers’ profits may jump as China bans Australian coal

The earnings of Indian steel manufacturers such as JSW Steel, Tata Steel, etc, are likely to rise in the coming months as the raw material — coking coal — is set to remain cheaper. The prices of coking coal are expected to dip as China has put a ban on Australian coking coal. Softer coking coal prices shall directly support EBITDA per tonne accretion of around Rs 2,600 over FY21, for companies using the blast furnace route, said a report by India Ratings. It is to be noted that the Chinese ban on Australian coking coal has the ability to affect the global metrics of steel. 

China and Australia are the largest coking coal trade partners in the world. While China’s imports form 40 per cent of the overall imports, Australia’s exports make 65 per cent of the world’s overall.exports. Consequently, for the Indian steelmakers, the cost of steel production is expected to fall by around Rs 1,800 per tonne on-year in the second half of the current fiscal year, while the cost of coking coal is likely to drop to nearly Rs 7,300 per tonne, compared to Rs 9,100 per tonne in the same duration last year. 

It is interesting to note that China has put a ban on imports of Australian coal despite its healthy steel production growth of 7 per cent on-year in the first seven months of the current fiscal year. The dragon has significantly cut down its coking coal imports by 12 per cent, against an on-year increase of 14 per cent in FY20. The move reflects China’s increased reliance on domestic coking coal, India Ratings added. 

Meanwhile, it is believed that coking coal prices would remain soft even though other major coking coal importers such as India, Japan, and South Korea’s production levels have recovered to pre-covid levels. Coking coal import prices fell to a 52-month low by mid-November 2020, falling 27 per cent since early-October 2020, due to the reports of a verbal ban on Australian coal imports by China, and in anticipation of an oversupply in the global market.