India’s steel giants in talks

India’s biggest steel producers, from Tata Steel and Steel Authority of India to JSW Steel, were in talks to buy coking coal at the lowest price since 2010, people familiar with the matter said yesterday.

They expected to contract the steelmaking ingredient at as low as $160 (R1 377) a ton for the first quarter, 32 percent below prices a year ago, the people said, asking not to be identified as talks were continuing. Steel makers in South Korea and Japan, which set a benchmark for India, had negotiated similar cuts, they said.

Swelling global supply and Europe’s slumping demand have undercut coal prices, adding to the improving outlook for steel manufacturers, whose shares jumped an average 11 percent last month.

Prime Minister Manmohan Singh unveiled plans last month to accelerate infrastructure approvals and to make buying land easier, in an effort to garner $1 trillion of investments by 2017 in roads, ports and power plants, which will use the metal.

“This quarter will probably be the best in the fiscal year for all major Indian steel producers in terms of earnings,” Centrum Broking analyst Abhisar Jain said. “Lower coking coal costs coupled with higher steel prices and an expected surge in demand after a probable interest rate cut are all good news.”

A predicted cut in benchmark interest rates this month may fuel car and home sales.

Tata Steel and JSW Steel did not respond when asked for comment. Steel Authority declined to comment before the prices are finalised.

“Stocks of big steel companies have run up on demand expectations,” Macquarie Capital Securities (India) head of research Rakesh Arora said. “We think returns may remain subdued but the downside is limited now because demand will be better than 2012.”

Coal prices averaged about 28 percent less last year than in 2011 as mines in Mozambique, owned by Vale and Rio Tinto, started production and Mongolian output increased.

Quarterly contracts with mining firms including BHP Billiton and Anglo American might be signed by the end of the month, the people said.

Prices had surged to a record $330 a ton in the previous financial year as demand increased and supplies were disrupted by heavy rains in Australia, the biggest producer.

Kobe Steel, Japan’s third-largest steel producer, had settled coking coal prices at $165 a ton for the January to March quarter, compared with $170 a ton in the previous quarter, spokesman Hiroyuki Hashimoto said on Tuesday. It also settled iron ore prices at $103 a ton, down from $117 a ton in the October quarter, he said.

BHP Billiton spokeswoman Eleanor Nichols said the firm did not comment on contractual arrangements, while a spokeswoman at Posco in South Korea declined to comment.

India’s steel ministry has forecast demand for the alloy would quicken this year after the government eased infrastructure investment rules.

Consumption would probably rise 8 percent in the three months to March and in the year from April 1, Sayan Sen, the manager at the ministry’s joint plant committee, said late last month. –

Abhishek Shanker and Rajesh Kumar Singh in Mumbai Bloomberg