India’s biggest steel producers, from Tata Steel Ltd and Steel Authority of India Ltd (SAIL) to JSW Steel Ltd, are in talks to buy coking coal at the lowest price since 2010, according to three people familiar with the matter.
They expect to contract the steel-making ingredient at as low as $160 a tonne for the first quarter, 32% below year-ago prices, the people said, asking not to be identified as talks continue. Steelmakers in Korea and Japan that set a benchmark for India have negotiated similar cuts, they said.
Swelling global supply and Europe’s slumping demand have undercut prices, adding to the improving outlook for steelmakers, which jumped an average 11% in December. Prime Minister Manmohan Singh last month unveiled plans to accelerate infrastructure approvals and to make buying land easier, all to garner $1 trillion of investments by 2017 in roads, ports and power plants that will use the metal.
“This quarter will probably be the best in the fiscal for all major Indian steel producers in terms of earnings,” Abhisar Jain, a Mumbai-based analyst at Centrum Broking Ltd, said in a phone interview. “Lower coking coal costs coupled with higher steel prices and an expected surge in demand after a probable interest rate cut are all good news.”
A predicted cut in benchmark interest rates this month may fuel car and home sales.
Charudatta Deshpande, a spokesman at Tata Steel, and R. Jayaraman, spokesman at JSW Steel, didn’t respond to emails seeking comment. Arti Luniya, a spokeswoman at Steel Authority, declined to comment before the contract prices are finalized.
Tata Steel, Steel Authority and JSW Steel reversed a two- day losing streak. JSW lead gains, rising as much as 1.3% to Rs.855 in Mumbai trading on Thursday.
Tata Steel has climbed 5.6% in the past month, while Steel Authority, the nation’s second largest producer, jumped 17%. JSW Steel increased 12% in the period.
“Stocks of big steel companies have run up on demand expectations,” said Rakesh Arora, head of research at Macquarie Capital Securities (India) Pvt Ltd. “We think returns may remain subdued, but the downside is limited now because demand will be better than 2012.”
Coal prices averaged about 28% less in 2012 as mines in Mozambique, owned by Vale SA and Rio Tinto Plc, started production and on higher output from Mongolia. Quarterly contracts with miners including BHP Billiton Ltd and Anglo American Plc may be signed by the end of the month, two of the people said. Prices had surged to a record $330 last fiscal as demand rose and supplies were disrupted by heavy rains in Australia, the biggest producer.
Kobe Steel Ltd, Japan’s third largest steelmaker, settled coking coal prices at $165 a ton for the January to March quarter, compared with $170 a tonne in the previous quarter, Hiroyuki Hashimoto, spokesman at Kobe said in a phone interview on 8 January. It also settled iron ore prices at $103 per tonne, down from $117 a tonne in the October quarter, he said.
Eleanor Nichols, a spokeswoman for BHP Billiton, the world’s biggest exporter of coking coal, said the Melbourne-based company doesn’t comment on contractual arrangements. Kim Ji Young, a spokeswoman at Posco, South Korea’s biggest steel producer, declined to comment. Bloomberg
Elisabeth Behrmann in Sydney, Sungwoo Park in Seoul and Masumi Suga in Tokyo contributed to this story.