JSW Steel sees higher coking coal costs in H2FY24: Jt MD

JSW Steel Vijayanagar plant

JSW Steel expects higher coking coal costs in the third and fourth quarter, but is confident that its impact on margins will be partly offset by price increases that it undertook in August, September, and October, joint managing director and chief executive officer Jayant Acharya told Moneycontrol in an interview on October 23.

So far, the Sajjan Jindal-led conglomerate has shielded its margins by charging higher prices, as the domestic demand for steel has remained robust thanks to a spurt in infrastructure and development projects in the country.

On October 20, the company posted  a net profit of Rs 2,773 crore in the second quarter of 2023-24. Healthy demand helped the steel-maker soften the blow from any rise in input costs.  In its report on October 17, The  World Steel Association said it expects  Indian steel demand to show healthy growth of 8.6 and 7.7 percent in 2023 and 2024, respectively.

"Coking coal prices have gone up substantially in the last one and a half to two months. The cost of the coking coal will partly flow into Q3 and Q4," Acharya said.

"However, the benefit of the price increases in August, September, and part of October will flow into October-December and offset some of the cost increase," he added.  For the third quarter, the company expects coking coal costs to likely impact margins by $30 per tonne on average, or slightly lower, due to blending benefits.

India imports the coking coal from Australia, Russia, the United States, and Canada.

Post the JSW Steel investors’ conference call, brokerage Motilal Oswal said, “In 2QFY23-24, the cost of coking coal was down by  $51/tonne as against the target of $40-45/tonne (due to better blends). However, in line with the recent increase in coking coal prices, JSTL expects the cost to increase by around $30/tonne in 3QFY23-24.”

In another report on October 21  after the results, brokerage Prabhudas Lilladher said that that recent sharp uptick in coking coal prices can put pressure on margins from 4QFY23-24, unless global steel players are able to hike prices.

Meanwhile, to address the higher input costs, the steel-maker is looking to procure the key input from various sources internationally, while also mulling the development of domestic mines.

"We will continue to look for strategic assets, either in terms of a stake or alliance, as long as the quality of coking coal meets the objective, and as long as the commercial value makes sense," Acharya said.

For the second quarter,  the company reported a quarterly consolidated total income of Rs 44,821 crore, as against Rs 41,966 crore a year ago. It benefitted from lower coking coal cost and higher sales volumes.

For FY23-24 / 24-25, Motilal Oswal raised  EBITDA expectations for the group by 5 percent / 3 percent, driven by strong 2QFY23-24 performance, and the commencement of operations at new iron ore and coal mines.