NEW DELHI, Feb. 7 (UPI) -- Indian steel producers are suffering the economic consequences of rising coal prices from their suppliers in flood- and cyclone-battered Queensland, Australia's major coal producing state.
Queensland accounts for about two-thirds of the world's supply of coking coal, a vital ingredient in steel making. Supply disruptions because of record flooding have driven coking coal spot prices from about $240 a ton last month to around $380 a ton.
India is Queensland's third largest purchaser of coal, buying more than 21 million tons in 2008-09, even more than the amount purchased by China.
Indian steel producers, dependent on coking coal to fire their plants, have already raised prices 3-5 percent.
"Not only will some sectors be adversely affected due to the rising prices, there will be a snowball effect on other sectors as overall costs rise. This will, in turn, further fuel inflation," said Sushil Maroo, director and group chief financial officer of India's Jindal Steel & Power Ltd., reports Indian newspaper the Business Standard.
The Queensland Resources Council estimates that 85 percent of the state's coal mines are operating at reduced capacity due to the December-January floods. Before Cyclone Yasi hit last week, Queensland's coal production was projected to fall by 25-50 percent in the March quarter.
"India is increasingly becoming dependent on imported coal, even though we have the third-largest coal deposits in the world. Domestic coal prices largely have long-term linkages, but any change in international prices will have a bearing on domestic prices," said Ajit Ranade, chief economist at the Aditya Birla Group.
SAIL, India's largest steelmaker, for example, relies on Australia for about 70 percent of the 10.5 million tons of coking coal the company imports for its steelmaking capacity of 13 million tons.
Suvobrata Ganguly, editor of Indian business magazine Core Sector Communique, said Indian steel manufacturers were being hurt by contracts with Australian miners that had been forced to declare force majeure, a clause that allows miners to miss contracted deliveries because of conditions beyond the company's control.
Buyers suffer, Ganguly said, because they don't get the coal for which they have a contract and must pay a higher price elsewhere. But because Queensland coal suppliers are considered as among the most reliable in the world, Ganguly said customers would return when production resumes.
Meanwhile, N. N. Gautam of the Indian Energy Forum said India is looking to the United States to compensate for supply shortfalls and has solicited bids for 600,000 tons of coking coal.