India steel output nears Japan’s, but not its met coal buying

Posted on 26 October 2017
 

Source: Platts

India’s crude steel production is approaching that of world number two, Japan, but steel raw material suppliers should not become overly focused on this.

Japan, along with faster growing South Korea, remain key to metallurgical coal contract markets, with greater volumes and broader sources of demand.

While India may be catching up with Japan on steel production, India is still trying to diversify further from coking coal dependency on Australia. Much more of India’s crude steel output comes from plants outside the main integrated mills.

Japan has far higher blast furnace rates and broader sources of met coals by country and grade, with these coals taking higher market shares than in India, according to an S&P Global Platts analysis of global coal trade data and via industry sources.

Indian crude steel output in January-September hit 75.3 million mt, compared with Japan’s 78.3 million mt, according to World Steel Association data released this week.

However, blast furnace iron output, which is of greater interest to met coal and iron ore marketers, leaves India a sizable gap to narrow, at 48.8 million mt to Japan’s 58.8 million mt.

The World Steel Association figures provide a mixed picture of annual growth rates in the two countries through the months. India’s direct reduction iron production using thermal coal and natural gas as iron reductants helps account for India’s higher implied crude steel output.

JAPAN, S KOREA KEY TO CONTRACT PRICING

Growth in Indian demand for coking coal and PCI has been fast but inconsistent.

Met coal takes top billing for raw materials traders working with India, as the country is largely self-sufficient in many grades of iron ore.

The pace of construction of new Indian steel plants has come in below industry projections for several years, dampening potential.

Japan’s high demand for HCC and iron ore and more rapid growth in neighboring South Korea recently mean contract pricing terms for met coal and iron ore pellet premiums are still settled in northeast Asia and used in India and elsewhere.

US coal miners Contura Energy, Blackhawk Mining, Arch Coal, and others such as traders see Indian growth in the future as key to diversification from Atlantic customers. India took a cargo from Alabama for the first time this year.

India is seeking to reduce its reliance on Australian coals, such as higher quality mid-vol, after supply was hit by cyclones, and is looking at buying more Canadian and US coal.

In April, loading at Queensland’s main met coal export hubs was frozen as torrential rain brought in by Cyclone Debbie damaged rail lines serving the Hay Point and Dalrymple Bay ports.

Japan produces more steel than India, but Australia exported close to double the amount of high-grade coking coal to India — over January-July at 16.2 million mt — than the 9.4 million mt in this segment shipped to Japan, according to customs data.

However, exports of Australian semi-soft coking coal over January-July to Japan hit 10.3 million mt, compared with 6.1 million mt shipped to India. State miner Coal of India supplies some domestic coals to Indian coke plants.

Higher freight rates and longer voyages to move coal into India from the Atlantic, or the other side of the Pacific, may complicate trade financing.

The lag between steel pricing in India and coal pricing at load ports, may make it harder to take on risk for banks, more accustomed to voyages from neighboring coal basins of Australia, Indonesia and Mozambique.

The ability to move coke blends and adapt practices to take on new grades of coal is also a slow burner, limiting the pace of changes.

The countries’ raw material import volumes remain in the shadow of China’s huge steel industry and growth in import demand. China’s spot market-based trade size over contract flows aids regular negotiated business.

China took in the most high-rank met coal exported from Australia over January-July, at almost 17 million mt, according to customs data.

For iron ore, China is by far the largest importer, on track to easily surpass 1 billion mt this year, with a growing margin to spare.



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