India reimposes import duty on coking coal, coke. What does it mean for steel sector? International,  Coking Coal 2022-11-22 13:19:18

The Union Finance Ministry has reintroduced import duties of 5% and 2.5% on metallurgical coke and coking coal, respectively, which were revoked in end-May this year.

The Russia-Ukraine war early this year resulted in Moscow attracting sanctions by the US and EU mainly, among other countries, and commodity prices skyrocketing. Australian coking coal prices touched all-time high levels of $650/t FOB, adding to the woes of Indian steel mills that are heavily dependent on coking coal imports.

Thus, in an effort to tame the inflationary pressure of rising raw material costs, the Indian government announced the removal of import duties on coking coal and coke in May this year. It also announced imposition of export duty on finished steel (15%), iron ore pellets (45%), and on all grades of iron ore (50%) so that ultimately steel prices cool off much to the benefit of domestic end-users.

Implications of duty re-imposition

India imports an average of 55 million tonnes of coking coal annually with 80% of it coming from Australia, followed by the US, Canada, and Mozambique.

Post duty imposition on 22 May this year, India imported 23.8 million tonnes of coking coal during Jun-Oct, up 10% against the same period last year. Met coke imports rose by 33% to 1.42 million tonnes whereas finished steel exports came down by almost 50% during the period.

Now, with the re-introduction of import duties, Indian mills would have to pay an additional cost. At current coking coal rates of $290/t CNF India for premium HCC, the additional cost of import duty would come at around $7/t (INR 595/t), whereas Chinese met coke is being offered at $390/t CNF India, and so the added cost would come to around $20/t (INR 1,600/t).

Indian steel mills were importing more of cheaper Chinese coke since the past few months as Australian coking coal was above $300/t levels and amid sluggish steel demand, availability of cheaper coke from China was a cost-saving alternative.

In the near-term, with changes in the duty structure in coal and coke, Australian coking coal demand would once again gain traction only if prices continue the fall and Chinese met coke prices remain stable. The probability of which is high as Chinese met coke producers have cut down production to curb oversupply and minimise losses amid sluggish domestic steel demand.

As regards steel, the removal of export duty is likely to boost the country's exports, but given sluggish global steel demand in key economies like Europe and China, any major rise in exports seems limited, thereby restricting any significant rise in coking coal imports.

However, in the long run, steel exports and coking coal imports will edge back to levels witnessed before the duty announcement in May.

This article has been published under the exchange agreement between Sxcoal and CoalMint.

(Writing by Tammy Yang  Editing by Harry Huo)
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