Fall in coal price to cut input costs from Aug-end, says Jindal Steel

18 Jul 2022

Jindal Steel and Power Ltd will derive realising the benefit of recent fall in price of coking coal, a key input cost, only from the second half of the current quarter, the company’s management told investors and analysts in a conference call on Friday.

Coking coal is used as fuel in the blast furnace during production of steel.

The coal procured earlier at high costs were being used in current production and would get used in the first 6-7 weeks of the current quarter, the company indicated.

Coking coal prices for Indian steel producers have dropped from $550-$670 in Mar-Apr to below $300 in the current monthly, data from the company’s investor presentation after its Apr-Jun results disclosure on Friday showed.

The consolidated net sales of Jindal Steel in Apr-Jun was 130.5 bln rupees, up 23% on the year and down 9% on the quarter. The net profit was 19.7 bln rupees, down 22% on the year and sequentially up by 30%.

The company told analysts that it saw the hike in export duties on iron ore and select steel products in May as input cost beneficial as it led to a lowering in its domestic iron ore procurement costs. The iron ore prices in the country have fallen 36% to 46% since April, the company’s data showed.

But the exports duty hike on steel products did pinch the company in its sales. The steel volume exported by Jindal Steel in Apr-Jun was down 28% as compared to the previous quarter. In comparison, domestic volumes sold fell only 12%.

Domestic steel demand slowed down in May and June after increasing in April for the company.

V.R. Sharma, Managing Director of Jindal Steel, told analysts that the receding input costs were a great relief the domestic demand during monsoon typically comes down as the construction activities go down.

Jindal Steel’s management also said that it was keen on exploiting input cost advantages from four coal blocks it recently got mining rights on.

According to Sharma the company will be in a position to start production from one of the four mines by March. The cost of coal produced from the company’s own mine and used in the steel production will be 30-40% of the cost it would have otherwise incurred in buying equivalent quantity of coal from Coal India or international companies.

But this is unlikely to happen in meaningful numbers any time soon. The company will not plough in new funds in developing and running the coal mines. The input costs saved in using coal from an operational mine will be plowed back to the cost of mining from its own coal blocks.

On the exports front the company said that notwithstanding the hike in export tax it aims to maintain its recent run rate of more than 20% in export volume’s share to total volume sold.