Indian Pig iron manufacturers have been under a lot of stress due to very high raw materials prices especially that of coking coal. This is causing prices of Pig iron to increase significantly as the pig iron manufacturers are trying to prevent themselves from going into red by passing part of the cost push to their customers.
In India, iron & steel prices have been on a rise in the past year. The price hike corresponds to a similar rise in worldwide in commodity prices. These are trading at record high for a variety of reasons throughout the world. One such factor is the sharp increase in the price of raw materials. Another issue is a supply shortage in China’s decision to reduce iron output and exports.
Though demand from the largest pig iron consumer steelmakers has remained strong, supply to foundries has been tight in recent months. Pig iron producers may boost prices further due to rising iron ore and coking coal rates but are unable to do so due to declining demand.
Automobile manufacturers have lately cut orders since they have a large inventory owing to low vehicle sales in recent months. Because of the decline in demand from the automotive sector, foundries that manufacture auto components and other industrial products are now buying less pig iron.
As the experts predict a price hike due to following major reasons may be imminent:
Rally in coking coal prices –
The global rally in coking coal prices has lifted met coke prices in Asian markets, notably China. The ex-China markets’ economic recovery from the pandemic-related slowdown has bolstered steel demand, but coal supplies have remained limited.
Trade conflict with Australia –
Australia is the leading seaborne coking coal supplier. According to Coalhub, due to China’s political and trade tensions with Australia, an unofficial ban on Australian coal has been in force in China since October 2020. Because of the rising demand for steel, Australia is diverting shipments to India and other Asian markets.
Disruption in Mongolia –
Supply pressure in China has intensified as a result of COVID-19 instances in north China, resulting in a shortage of truck drivers, impacting met coal supply and rising production costs. According to China’s National Development and Reform Commission, buyers are struggling to source met coal from Mongolia due to the impact of COVID. which has hampered supply stability. As a result, coal prices will continue to rise in the short term.
Can the price hike be avoided?
It is worth noting that India is almost totally reliant on imports of premium low-ash coking coal to keep steel manufacturing going. The largest importers have direct ties with coking coal miners, primarily from Australia, and buy on a contract basis, which protects prices from severe market fluctuations. Smaller customers, however, are subject to the whims of the market. These buyers are struggling to stay afloat in the face of the coking coal rise.
Because currency exchange rates in India are relatively lower, imports of coking coal and coke have become expensive but at the same time have catapulted India’s met coke exports.
In such a scenario, few of the merchant pig iron manufacturers may restrict output to offset losses, further complicating the sensitive supply position in the domestic pig iron area. Alternatively, they may resort to readily accessible replacements such as melting scrap, which would raise scrap prices in the domestic market.
As nothing is written in stone, the end-users in the foundry and steel industries still should prepare themselves for an increase in pig iron pricing.
The brighter side to the price rally? (conclusion)
Although it is not completely inevitable, similar incidents may again cause price surges in the future, but there is an underlying long-term reason that may result in coking coal costs to rally even more. Investment in both coking coal mines and coke batteries has been dropping and is projected to continue declining due to worries about sustainability.
As we have seen, multiple factors have contributed to the recent spike in coking coal prices. However, there is a brighter side to this situation as well. Consistently high coking coal costs would accelerate the steel industry’s switch to greener options while also fundamentally changing iron ore pricing dynamics in the mid to long term. Companies operating in these areas should prepare for high coking coal prices at least in the near to midterm future.