Profits of steelmakers like Tata Steel, JSW Steel and others may jump as China bans Australian coal

The earnings of Indian steel manufacturers such as JSW Steel, Tata Steel and others are likely to go up in the coming months as the prices of coking coal is set to remain cheaper. The prices of coking coal are expected to fall as China has put a ban on Australian coking coal.

Softer coking coal prices shall directly support EBITDA per tonne accretion ofaround Rs 2,600 over FY21, for companies using the blast furnace route, it is understood. 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 that of Australia 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. 

Here, a point to be noted is that China has banned 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. On the other hand, Australia 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.