Steel better placed among metals, falling coking coal prices will benefit Indian cos: JP Morgan

"When we look at all the commodities, steel still stands out in a relatively better way, because the next spread increase, which is the price increase minus the raw material cost increase in coking coal is still positive," he explained.

"Coking coal is down from USD 630 per tonne to around USD 400 per tonne and falling even further. So to that extent, for all the Indian steel mills - all of them buy coking coal from the market in different degrees - they will all benefit in terms of lower cost," he said.

Among steel companies, those integrated with iron ore will be better placed in terms of margins, Parekh shared.

"In terms of margins, I still think companies which are integrated with iron ore would benefit more simply because iron ore prices remain elevated and as long as steel prices remain high, the spreads for all the steel companies would be higher in the first half versus the second half of FY22," he said.

Parekh mentioned that H1FY23 will partly reflect the higher coking coal prices as March was a tight month with respect to supplies.

"Coking coal historically can fall more than 50 percent from its cyclical peak in February-March. This time, the situation is that a lot of Chinese coking coal is stranded at the Mongolian borders because of COVID. So at some point of time, if those restrictions ease and Chinese domestic coking supply increases further, that could potentially push down coking coal prices further from USD 380 a tonne," he said.

"In terms of steel companies, they normally carry a three-month inventory. So first quarter, you could see some impact from the high coking coal prices, but margins should be better than what we have seen in the previous half. March is seasonally the tightest month for coking coal supplies," he added.

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Shedding light on the March quarter, Parekh said that Q4FY22 volumes will be strong as this is usually the strongest quarter.

He said, "All the steel companies had highlighted in the December quarter that seasonally volumes will pick up in the March quarter as it is seasonally the strongest quarter."

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