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Indian steel mills likely to benefit from lower iron ore, coking coal prices: ICRA

31 May 2017 Evaluate

Domestic rating agency, ICRA in its latest report has said that steel mills in India likely to benefit from lower iron ore and coking coal prices in the current year. Though, it also said that continued weakness in demand remains a worry for the steel industry with a growth of mere 4.6 percent and 2.6 percent in FY16 and FY17 respectively, due to sluggishness in key end-user industries. It added that weak demand conditions have also led to a correction in domestic hot rolled coil (HRC) prices by 7 percent in May 2017.

The ratings agency has said that prices of seaborne iron ore have corrected by 36% between February and May of 2017, pulled down by a correction in Chinese steel prices, rising inventory levels at Chinese ports, and addition of low cost fresh supplies from Australia and Brazil. It also said that during this period, domestic lump ore prices have shown a diverging trend, rising by around 4 percent. However, it added that this weakening in seaborne prices will make iron ore exports by domestic miners less remunerative, which could lead to higher domestic supplies along with a correction in domestic ore prices in the coming months.

According to the report, seaborne prices of coking coal, the other key steelmaking ingredient for which India depend on largely on Australian exports, have also witnessed a sharp decline from $314/million tonnes (MT) in mid-April 2017 to $170/MT in mid-may 2017 after the resumption of supplies from Queensland post the disruption caused by cyclone Debbie during April 2017. Besides, in the financial year 2016- 17, domestic steel production grew by 10.7 percent, buoyed by the government's trade protection measures and favourable export realisations, which led to a decline in India's steel imports, and a doubling of steel exports.

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