With the settlement of Q4 hard coking coal prices at $285 per tonne fob Australia between Anglo-American and Posco, coal prices and consequentially steel price movement in the coming months may enter an interesting phase. This is a $45 per tonne drop within a period of four months.
As has been the trend in coal prices, it is quite likely that by next month, the prices may come down by another $20-$25/tonne. Iron ore fines (FE 63.5%, Indian origin, cfr China) at $185-$186/tonne may fluctuate within a short band of $5-$10/tonne.
Current HRC prices at $690-$710/tonne-fob has dropped from the earlier level of $715-$725/tonne. Calculated at the current operating cost (marginal) ranging between $590/tonne to $700/tonne, there is not much scope for achieving a reasonably good EBITDA margin/tonne for HR producers.
With drop in coking coal and iron ore prices, albeit not significant, the margin may marginally improve. Just released annual accounts of BHP Billiton indicates that the coal producing firm has notched a net profit of more than $23 billion which is nearly 33% of the annual revenue. Mining firms would continue to experience strong demand and high realisation in the coming months.
Melting scrap price is high at $475-$480/tonne cfr Indian ports. Sponge iron prices have also gone up yielding gains to the producers. At this level, the prices of Rebar exceed that of HR Coils.
It is widely believed that after the seasonal slowdown impact of monsoon, construction activity would commence in full swing generating a demand push for long products.
Indian HR producers? average ex-works realisation of R34,000-35,000/per tonne also does not leave much residual after taking out the rising cost of imported coal, domestic iron ore prices, electricity and manpower costs.
The demand from tube, cold reducing, power plant equipments and consumer durables segments is still subdued. Auto demand for CR is less buoyant than a few months earlier.
For flat categories also, infrastructure construction would play a big role in generating demand for more power equipments, boilers, pressure vessels, wagons, coaches, crash barriers, penstocks, steel frames for wide span construction like airports, commercial complexes, oil and gas pipelines, platforms for shipyards, material handling equipments etc.
Coming quarter must be termed as the policy planning phase by the government, particularly for the mining sector.
Favourable market sentiments owe quite a lot to the dynamism, commitments, innovativeness and understanding by the political leaders ably supported by a positive thinking bureaucracy. Industry must be assured of an environment conducive to gainful investment, strong and stable monetary and fiscal policies to facilitate generation of income and employment.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal