Profits for Tata Steel, JSW Steel and other Indian mills may surge as China bans Australian coal

The earnings of Indian steelmakers such as JSW Steel, Tata Steel, etc., are likely to increase in the coming months as the feedstock, coking coal, will continue to be cheaper. Coking coal prices are expected to fall as China has banned Australian coking coal. Softer coking coal prices will directly support EBITDA per ton of accumulation of around Rs 2,600 during fiscal year 21, for companies using the blast furnace route, according to a report from India Ratings. It should be noted that the Chinese ban on Australian coking coal has the ability to affect global steel metrics.

China and Australia are the world’s largest coking coal trading partners. While China’s imports make up 40 percent of total imports, Australia’s exports account for 65 percent of the world’s total exports. Consequently, for Indian steelmakers, the cost of producing steel is expected to fall around Rs 1,800 per ton on a year in the second half of the current fiscal year, while the cost of coking coal is likely to fall to almost Rs 7,300 per ton. ton, compared to Rs 9,100 per ton in the same duration last year.

Interestingly, China has banned Australian coal imports despite its healthy 7 percent year-on-year steel production growth in the first seven months of the current fiscal year. The dragon has significantly reduced its coking coal imports by 12 percent, up from a 14 percent year-on-year increase in fiscal 2020. The move reflects China’s increased reliance on domestic coking coal, India Ratings added.

Meanwhile, coking coal prices are expected to remain low despite the production levels of other major importers of coking coal, such as India, Japan and South Korea, having recovered to pre-covid levels. Import prices for coking coal fell to a 52-month low in mid-November 2020, dropping 27 percent from early October 2020, due to reports of a verbal ban on Australian coal imports by China, and in anticipation of a glut in the country. global market.