India's leading steel manufacturers are urging government intervention to curb the surging prices of crucial raw materials, namely iron ore and coking coal. The Indian Steel Association, representing steel industry giants, has raised concerns about the opaque price discovery process for coking coal, specifically through international indices like Platts and Argus, reports Business Line. The ISA asserts that these indices are subjective, lacking transparency and accuracy, leading to distorted pricing. Importantly, the steel sector seeks regulatory measures to ensure fair pricing, proposing potential initiatives, including exploring a India-specific coking coal price index.
In the expansive landscape of India's steel industry, a rising clamor for government intervention reverberates among major players. AM/NS India, JSW, Tata Steel, Jindal Steel & Power, and public sector units like SAIL and RINL, collectively voiced their concerns through the Indian Steel Association (ISA), shedding light on the escalating prices of critical raw materials—iron ore and coking coal.
The ISA's primary contention lies in the intricate web of pricing for coking coal, orchestrated by international indices such as Platts and Argus. According to industry insiders, these indices lack the necessary transparency, leading to a distorted price discovery mechanism. The import prices, tethered to these indices, are deemed "subjective," creating a ripple effect in the pricing structure, especially within the Indian market.
The ISA underscores a key flaw in the pricing dynamics—the absence of actual transactions. The indices, it argues, move based on hypothetical scenarios, pushing prices upward without concrete transactions. The pricing methodology, pegged to average monthly index assessments, further exacerbates the situation. The ISA contends that the pricing for a given month is determined by the average monthly price assessed in the preceding month, creating a lag in reflecting market realities.
Furthermore, the ISA highlights the low liquidity in the spot market, ranging from 4% to 10%, which significantly influences prices in India. The steel mills assert that certain coal deals between suppliers and their affiliated trading entities, along with trader-to-trader bids and offers lacking actual transactions, find their way into the index prices, further distorting the price discovery mechanism.
In a letter to the Ministry of Steel, the ISA expresses concerns over the heightened volatility in the import prices of coking coal, emphasizing its impact on long-term contract sales. Seeking government intervention, the ISA proposes options such as initiating a case under competition law to address the skewed pricing dynamics.
Interestingly, discussions have surfaced regarding the potential establishment of an India-specific coking coal price indexation to enhance accuracy and relevance. Market research firms have signaled their willingness to contribute to such an index, although these discussions remain in the early stages.
The steel industry in India, the world's second-largest producer of crude steel, grapples with the challenge of securing cost-effective and transparent pricing for essential raw materials. Coking coal prices surged by 49% from May to November the previous year, reaching $365 per tonne in October. Iron ore prices have also witnessed significant increases, prompting the Competition Commission to discourage iron ore exports and advocate for a globally competitive steel sector.
India's steel industry stands at a critical juncture, calling for decisive government action to rectify the distortions in raw material pricing. The opaque nature of coking coal price discovery, driven by international indices, has triggered concerns among major steel producers. The ISA's appeal for intervention underscores the need for a fair and transparent pricing mechanism, ensuring the industry's sustainability. As discussions unfold around the prospect of an India-specific coking coal price index, the steel sector navigates the delicate balance between market forces and regulatory measures to secure its future.