Rising input costs to weigh on steel companies’ profit margin – The Hindu BusinessLine

Clipped from: https://www.thehindubusinessline.com/todays-paper/tp-news/rising-input-costs-to-weigh-on-steel-companies-profit-margin/article65202789.ece

Many steel companies have revived their capex cycle to improve their profitability Niteenrk

Many steel companies have revived their capex cycle to improve their profitability Niteenrk | Photo Credit: Niteenrk

Russia key coal, nickel producer; coking coal prices have soared three times so far this fiscal

Sanctions on Russia are set to push up input cost of steel companies for some time till raw material trade flow re-adjusts.

Being the fifth largest global coal producer, Russia accounted for 10 per cent and 17 per cent of the international trade in metallurgical and thermal coal respectively last year.

Since the start of FY22, international coal prices have rallied sharply, with spot prices of premium hard coking coal (FoB Australia basis) and high-grade thermal coal (FoB South Africa) increasing by three times and 125 per cent, said rating agency ICRA. Elevated coal costs started to nibble at the margins of listed steelmakers in the December quarter, as earnings trended downwards compared to the September quarter.

Supply disruptions

In addition, Russia is the third largest global producer of nickel, a key raw material used in stainless steel production, and along with Ukraine, Russia is also a leading global exporter of iron ore pellets. Supply disruptions of key steelmaking raw materials would lead to heightened input cost pressures for Indian steel companies.

Jayanta Roy, Senior Vice-President & Group Head, ICRA, said after reporting a steep 70 per cent sequential increase in cost of coking coal last quarter, a further increase of 15 per cent is expected in the March quarter.

Though iron ore prices have moderated and domestic mills have announced some price hike in January, these will not be able to entirely compensate for the steep rise in coking coal costs, he added.

More exports possibilities

However, reduced market access for Russian steel mills could help Indian steel producers increase footprint in Europe and the West Asia, where the CIS countries cumulatively export around 22-23 million tonnes of steel annually.

Indian mills could also vie to have a greater footprint in the US, where Russia is a key supplier, and where the presence of Indian steel companies is fairly limitedr.

However, the extent of export will be limited by the already high capacity utilisation levels of leading steel companies in India, said Roy.

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