While power companies in India are still coming to terms with an increased price of coal they source from Indonesia due to its sudden benchmarking to international prices, it’s now the turn of Indian steel companies to go through a similar ordeal.
They may have to shell out a few extra dollars towards sourcing of coking coal from Australia from July 1. The Australian government has finally passed a Bill asking big iron ore and coking coal companies in the country to cough up almost 30% of their profits in order to maintain an equitable distribution of wealth in the island country.
After over 18 months of intensive debate with industry players, the Upper House of Parliament in Australia has approved the Mineral Resource Rent Tax (MRRT) Bill to be brought into effect from July 1, 2012. “Australia’s Queensland region itself accounts for close to 60% of global seaborne coking coal trade and any impact on coking coal mining in Australia reflects in coking coal price trends worldwide,” said an analyst with an international brokerage firm.
He said since big players such as BHP Billiton and Rio Tinto will not be keen to absorb the 30% loss of profits they otherwise would have earned, they will definitely look at passing it on to customers.
While it is currently not quantifiable as to what will be the level of impact in terms of exact numbers, analysts are of the opinion that it could lead to a few basis points of permanent hike in coking coal prices the world over, and India will be no exception.
“We expect the coking coal prices to be impacted by around 2-3% once the tax is brought into effect which could translate into over 1% impact on steel companies’ realisations,” said Bikash Bhalotia, senior analyst with brokerage Pinc Research.
He said India currently imports 35 million tonnes of coking coal from Australia and with India’s steel capacity going up by over 15 million tonnes over the next 18 months, the coking coal demand is expected to move up equally.
However, the major impact is expected to be on companies such as Gujarat NRE Coke and Bhushan Steel, which directly own coking coal mines in the island nation. “While Bhushan still needs time to develop its resources in Australia, Gujarat NRE Coke will see an immediate impact as it has its mines already operational there,” he added.