Australian floods to hurt Indian steelmakers profit by 4-5 pc

Mumbai, Feb 1 (PTI) The profitability of the Indian steelproducers will decline by 4-5 per cent in April-June as thecoking coal, a key input in steel manufacturing, has gone upby USD 40-50 per tonne due to devastating floods in Queenslandin Australia, according to a study.

According to a study by research and rating firm Crisil,the operating margins of the steel makers will decline in theApril-June period as the floods will affect the import ofcoking coal.

"Coking coal accounts for about 45 per cent of the rawmaterial costs of non-integrated steel producers in India. Therun in coking coal prices will affect the margins of theseproducers, who are already vulnerable to an expected increasein iron ore prices over the next quarter," Crisil''s Head(Research), Manoj Mohta, said in a statement.

Queensland, which is badly hit by the recent flashfloods, accounts for 40-45 per cent of the world''s exports ofcoking coal.

The disruptions in supply because of the floods havedriven coking coal spot prices up by USD40-50 per tonne to USD280-290 per tonne, the report stated. .

These higher prices will flow through into the operating margins of India''s non-integrated steel producers, who importtheir entire requirement of coking coal for the April-Junequarter.

Integrated steelmakers, who constitute 25-30 per cent ofIndia''s steelmaking capacity, will be shielded from theseincreases as they source all of their iron ore, and a largepart of their coking coal, from captive mines, the reportsaid.

The effect of rising coking coal prices will make itselffelt starting April, when steel players enter into newcontracts with mining companies.

Reflecting the sharp increase in spot prices, coking-coalcontract prices for the April-June quarter will rise by 15-20per cent q-o-q to USD 260-270 per tonne.

Steel prices, which are likely to increase by USD 20-30per tonne during the quarter, will not offset the pronouncedincrease in coking-coal cost, the report added.