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Australian floods to hurt Indian steelmakers profit

Mumbai: The profitability of the Indian steel producers will decline by 4-5 per cent in April-June as the coking coal, a key input in steel manufacturing, has gone up by USD 40-50 per tonne due to devastating floods in Queensland in Australia, according to a study.

According to a study by research and rating firm Crisil, the operating margins of the steel makers will decline in the April-June period as the floods will affect the import of coking coal.

"Coking coal accounts for about 45 per cent of the raw material costs of non-integrated steel producers in India. The run in coking coal prices will affect the margins of these producers, who are already vulnerable to an expected increase in iron ore prices over the next quarter," Crisil`s Head (Research), Manoj Mohta, said in a statement.

Queensland, which is badly hit by the recent flash floods, accounts for 40-45 per cent of the world`s exports of coking coal.

The disruptions in supply because of the floods have driven coking coal spot prices up by USD40-50 per tonne to USD 280-290 per tonne, the report stated.

These higher prices will flow through into the operating margins of India`s non-integrated steel producers, who import their entire requirement of coking coal for the April-June quarter.

Integrated steelmakers, who constitute 25-30 per cent of India`s steelmaking capacity, will be shielded from these increases as they source all of their iron ore, and a large part of their coking coal, from captive mines, the report said.

The effect of rising coking coal prices will make itself felt starting April, when steel players enter into new contracts with mining companies.

Reflecting the sharp increase in spot prices, coking-coal contract prices for the April-June quarter will rise by 15-20 per cent q-o-q to USD 260-270 per tonne.

Steel prices, which are likely to increase by USD 20-30 per tonne during the quarter, will not offset the pronounced increase in coking-coal cost, the report added.

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