Short term outlook for coal prices in India

1. Coking coal prices which had softened towards the beginning of this year have of late firmed up again. Where do you see the coking coal prices (hard, semi-soft and soft varieties) in the second half of 2009-10 and also in FY 11?

- The prices in the short run, particularly in the second half of this year, may depend on the impact of Chinese order for the smaller mines to merge with the larger ones, which may see many of the steel mills to focus on the import market. This may continue to strengthen the prices. Also, good indications from the production of steel from the Japanese market have lead to the expectation of marginally higher prices of coaking coal. The prices in 2011 are also expected to be in line, may be a few dollars higher than those of 2010.

2. What are the reasons behind the sudden surge in coking coal prices? Is it driven by growing imports both by China and India to meet the demand in these countries?

- Growing imports from China and the expectation of return to growth path of Indian economy has certainly boosted the coking coal prices. There is uncertainty in whether the small mines in China will resume operations after the lapse of 31st August deadline to merge them with large mines, which may force steel mills, usually the smaller ones, to import. A cue may also be taken from the announcements of increase in steel prices by the Indian steel companies. Positive signals about the US recession and growth in Japanese steel output have also led to robustness in coking coal prices.

3. How would the hardening coking coal prices impact the operations of the steel makers and other consumers of coking coal in India who mainly depend on imports for their requirement?

- Quite obviously, the cost of inputs for steel manufacturers in India may rise on account of higher coking coal import bills. These may have to be absorbed by the manufacturers and consumers of steel, the proportion of which will depend upon the elasticities of demand for the steel products.

4. What are the projections for thermal coal prices in the second half of this fiscal and also in FY 11?

- Spot prices for internationally traded thermal coal in the second half of this fiscal is likely to hover around USD 70 and a corresponding rise in contract prices. These may primarily be attributed to strength in demand from emerging markets, including India. There is an expectation of higher domestic supply in China, but that slack may be well compensated by rise in demand other countries, mainly, from India.

5. When do you foresee a price hike of coal in the domestic market by the state run coal miners- Coal India Limited and Singareni Collieries?

- Price hike from CIL and SCCL are being talked about in light of the additional financial burden on the companies from the pay commission recommendation. The proposals of such nature have reached even the Prime Minister's office in the past, and history is likely to repeat itself. So, timing of such price hike may be anybody's guess.

(These are my opinions on short term movements of coal prices in India, and the same should not be used for any purpose without expert review and assessment.)