China's ban on Australian coking coal to support steel producers in India

Jan 19,2021

According to India Ratings and Research (Ind-Ra), even though China's prohibition on Australian coking coal, cost of production of India's steel producers using the blast furnace route will remain confined shortly. 

Therefore, the Chinese step will bring down prices of coking coal, which will directly support EBITDA per metric ton accretion of respect to the variables of 2,600 over FY21 for industries utilizing blast furnace route.

Ind-Ra said in a report, “such companies are likely to have reduced cost of steel production by around ?1,800 per tonne YoY in 2HFY21, supported by the reduced cost of coking coal per tonne of around ?7,300.”

According to Ind-Ra, China's prohibition also resulted in a negative outlook, mostly on coking coal prices.

It predicts Australia's high CNF rates for rough coking coal (HCC) to be around $120 per metric ton and over remaining FY21, except Australia's climate supply disruptions.

Despite China's 7 per cent y- o - y healthy steel production growth during the first 7MFY21, its coking coal shipments declined substantially by 12 per cent as compared to a 14 per cent y - o - y increase in FY20, reflecting the nation's increased dependence on local coking coal.

Considering the low coking coal shipments by China in 7MFY21 and a possible additional reduction in the context of China's ban on Australian coking coal, an excess supply will grow unless Australian miners significantly reduce their production.

Thus, coking coal rates will remain low, though some large importers of coking coal including India, Japan, and the production levels of South Korea have recovered them to pre-COVID-19 levels, Ind-Ra added.

Recently, China and Australia have been the world's largest coking coal trading partners.

Imports from China and Australian supplies account for the largest share of 40% and 65 per cent of the total world commerce in coking coal.

As Chinese end-users are likely to rise their domestic coal production or purchase coking coal from countries like Indonesia, Russia, Canada and the United States, Indian consumers are likely to gain bargaining power with Australian coking coal.

For Australian coking coal, China and India have always been the most significant users, battling one another. They comprise 24 per cent and 25 per cent respectively, of Australia's overall metallurgical coal exports.

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