Merged Indian steel producers to restock coking coal

Indian steel producers have begun restocking coking coal from the spot market as they boost steel production at plants acquired from their bankrupt former rivals.

Indian private-sector firm Vedanta bought a 55,000t cargo of August-loading Oaky North from Australian producer Glencore at $197/t fob Australia yesterday. The cargo will be used at the 1.5mn t/yr integrated steel plant at Bokaro in east India's Jharkhand state, which it acquired in June from Electrosteel for $790mn.

Additional spot buying activity in the third quarter is expected from Tata Steel, which also gained approval from Indian's bankruptcy court last month to take over 5.6mn t/yr producer Bhushan Steel for $5.21bn.

Bankrupt steel mills such as Bhushan Steel and Electrosteel did not have enough credit to finance major purchases of coking coal, and instead kept production rates low and bought small cargoes of feedstocks as necessary. Solvent companies like Tata Steel and Vedanta can scale up production at these plants while profit margins for Indian mills remain firm.

"Bhushan Steel may have only been operating at 70-80pc of capacity, but Tata will want to increase to full capacity and they will need to rebuild coking coal stockpiles to do that," an Indian trader said.

But Tata Steel may be unable to rapidly expand its contract volumes from Australian producers, particularly while railway provider Aurizon is implementing a controversial maintenance plan that threatens to cut coking coal exports from Queensland by 20mn t/yr or more over the next year, the trader said.

"They are thinking about how they can cover their requirements, but it looks like they will have to rely on the spot market for supplies and BMA in particular because US and Canadian supplies will take too long to reach India," another Indian trader said.

Indian steel output can further increase as more acquisitions of bankrupt mills are approved. JSW Steel's takeover of Monnet Ispat is pending, while the acquisition processes for Bhushan Power & Steel and Essar Steel are still in the bidding stage.

Further consolidation of the industry can help India become the world's second-largest steel producer after China, overtaking Japan with more than 100mn t of steel output this year. This will coincide with India re-establishing itself as the world's largest coking coal importer this year with an estimated 59.1mn t.