Pig iron prices in India's merchant market are rising fast due to increased production costs, as prices of coking coal and metallurgical coke - an essential ingredient in blast furnace iron-making - are rising rapidly. In fact, prices are on the verge of hitting a 10-year high. Merchant pig iron ore producers based in western and eastern India informed SteelMint that fast-increasing coke prices are forcing producers to raise pig iron prices.
Steel grade pig iron prices rose by 1.6% to INR 38,500 ex-works in the eastern Indian market of Durgapur on 10 Sept'21 - up INR 600, d-o-d. Mill sources informed SteelMint that higher input (coke) costs are pushing prices higher. Similarly, foundry grade pig iron prices have increased by around INR 500/t in the last two-three days. Traders are currently offering foundry grade material at INR 44,500-44,700/t for Ludhiana and Delhi in north India, on delivered basis (including local freight costs).
India's total merchant pig iron production in FY'21 stood at 4.8 mn t, as per SteelMint data. Production of steel grade pig iron was 3.65 mn t. Foundry grade pig iron production was around 1.15 mn t.
- Coking coal rally - The global rally in coking coal prices have boosted met coke prices in the Asian markets, including China. Economic recovery from the pandemic-related recession in the ex-China markets has boosted steel demand, while coal supplies have remained tight.
- Trade spat with Australia - Since China's diplomatic and trade tensions with Australia - the leading seaborne coking coal supplier - there has been an unofficial ban on Australian coal in China, in effect since Oct'20. Rising demand for steel production has enabled Australia to divert cargoes to India and other Asian markets.
However, despite curbs on steel production, Chinese domestic supplies have remained under pressure due to falling imports and decreasing domestic coal inventory. Data from the General Administration of Customs shows that imports of coking coal in the Jan-Jul'21 period stood at 26.133 mn t, down 19.41 mn t or 43%, y-o-y.
As a result, met coke prices in China have increased sharply. Met coke (30-80mm, 62% CSR) prices in the key steel production hub of Tangshan rose to RMB 3,210/t ($496) in Aug from RMB 2,780/t ($430) in Jul - a monthly rise of $66/t. The latest news from China is that due to strong steel prices currently, the major coke producers may propose the 10th round of price increase by RMB 200/t following the latest hike in domestic coking coal prices. It is believed by producers that the hike could be absorbed as steel producers have increased their margins on falling iron ore prices.
- Mongolia disruption - Supply tightness has worsened in China after the imposition of the 14-day quarantine recently due to spread in COVID-19 cases in north China which has led to shortage of truck drivers affecting met coal supply and raising production costs. China's National Development and Reform Commission said that buyers are finding it difficult to source met coal from Mongolia amid the pandemic, which has hit supply stability. As a result, coal prices will remain high in the near term.
Earlier in Aug, some coal truck drivers had tested COVID positive at the Ganqimaodu port - China's largest channel of importing coal from Mongolia - thereby disrupting supplies. Mongolia exported 9.43 mn t of coal to China in the Jan-Jul'21 period.
In addition, China's domestic cap on coal production and met coke production to reduce carbon emissions during the 14th Five-Year Plan period has intensified the existing supply concerns. Some leading steel-producing provinces have received instructions from local authorities to restrict and/or wind down coking operations. Such curbs are expected to intensify during the winter heating season and the campaign for blue skies in the run-up to the Winter Olympics in Feb'22. Supply concerns could, therefore, worsen. However, the government's decision to extend steel production cuts till Mar'22 could alter the scenario.
Amid firm domestic demand from steel producers and rising seaborne coking coal prices, met coke prices in the Indian domestic market have climbed around INR 6,000/t from mid-Aug levels, SteelMint data shows. Prices for 25-90 mm material in eastern India have risen by 4.5% on the week to INR 34,000/t ex-yard Cuttack. Prices have increased by 4.6% on the week in western India to INR 35,000/t ex-yard Surat.
India: Met coke prices rise
Market sources informed SteelMint on 10 Sept that met coke prices have increased further and merchant pig iron producers are holding offers, in all likelihood considering raising pig iron prices to cover costs. A major western India-based producer told SteelMint that if current coking coal prices sustain it would be difficult for pig iron producers to break even. Producers who have coke or coal produced earlier than May could still sustain, sources said.
Is price hike inevitable?
It is important to note that India is more or less entirely reliant on imports of premium low-ash coking coal to sustain steel production. However, the major importers - the integrated steel producers -have direct channels with coking coal miners, mainly in Australia, and buy on a contract basis that cushions prices from wild market swings. Smaller buyers, on the other hand, are exposed to the spot market. These buyers are finding it difficult to sustain in the face of the coking coal rally.
SteelMint has also learnt from market sources that high coking coal and coke prices have resulted in a boost in India's exports of met coke, as conversion rates in India happen to comparatively cheap.
In such a situation it could be expected that some merchant pig iron producers might reduce production to offset losses that could complicate the delicate supply situation in the domestic pig iron space. Alternately, they might turn to available substitutes such as melting scrap that, in turn, could boost scrap prices in the domestic market. In sum, end-users in the foundry and steel sectors should brace themselves for an inevitable hike in pig iron prices.