See coal prices come down to $150-160 in 2009: Guj NRE

Excerpts from the exclusive interview with Arun Kumar Jagatramka and Seshagiri Rao:

Q: A quick check on how you expect spot prices to behave from hereon, given the kind of increase that we have seen coming between BHP Billiton and Arcelor Mittal?

Jagatramka: Hard coking coal prices this year have been expected to be around USD 300 at least for the last 10-15 days based on what the market expectations were and you can say they are practically in line with the market.

This is mainly because of two factors, one is compared to last year 96-98, the expectation was for current year contracts to be in the range of USD 150-160 in December-January this year. But then in January-February, we had very heavy floods in Queensland, which led to fourth major closure of 33 coking coal mines in Queensland and have taken out almost 8-10 million tonnes of production of the market, which is practically 5% of the annual sea-borne trade in coking coal and that has created a shortage that will last at least for the current year and that is why you are seeing prices at the USD 300 range.

In the long-term, say next year, we would expect them to come down below USD 200 to USD 150-160, which should be the range that we should be looking at over the longer-term.

Q: Does this present a case for players now to go back to the government and ask for a price increase and if so, what do you think the price increase quantum should be to counter such a sharp increase in raw material costs?

Rao: The coal prices have settled today at around USD 300 plus and are mainly based on the demand-supply situation. There is a shortage in the market. Coal availability itself is a problem. So, in that scenario for steel companies, there are very limited options available today to hold the prices. In that scenario, we are just looking at the cost-push that can happen on account of this.

Q: How soon could we look at a pass through of this price increase?

Jagatramka: This is something we need to discuss because already the shipment which took place a week or ten days back have been priced by BHP at provisional prices which should be revised in line with the current settlement that have now been done. Till now they were shipping around 220-240 as a provisional pricing but they will be revised upward and will have to pay the difference. So we need to pass on to some extent because that way coke prices have gone up for last two-three months from a lower level to higher level in January-February itself.

Q: Could you tell us whether this cost push is going to be the same as what Mr Rao is talking about for your Indian operations, is it going to be about USD 200 a tonne?

Jagatramka: It will be more than USD 200 a tonne because if you need 1 tonne of coking coal for 1 tonne of steel and you are looking at USD 220 in coal itself, so for a standalone steel company I would say that the cost-push would be more than USD 250.

Q: If you are not allowed to raise prices, what would this do to your margin picture now if prices are going to come in at USD 300 per tonne?

Rao: Basically the international prices for steel products are quite high. They have already reached more than USD 1000 and the coal prices are revised to USD 300 and the iron ore prices are also high. In this scenario, it is very difficult for companies to hold back the prices for steel companies. So there is definitely a need to raise the price.