Higher coal prices could slow Indian steelmakers' debt reduction plans, with leverage for the sector falling to 2021 levels if input prices remain unchanged, according to S&P Global Ratings.
"We no longer think India's leading steel companies will shed debt in the coming fiscal year," said S&P analyst Anshuman Bharati in a note on Wednesday. "Instead, debt should remain at the same level, due to narrower steel spreads that will feed into cash flows."
The firm estimates that the consolidated debt of the country's major steelmakers, which account for three-fifths of total production, will be 2.1 trillion rupees by March 2025, up 150 billion rupees from the previous estimate.
S&P now expects average metallurgical coal prices to be $270 per tonne in 2024, up from $220 per tonne previously estimated. This is largely due to supply constraints in Australia, tensions in the Red Sea, and high demand from India and other markets outside of China.
In the December quarter, average met coal prices increased by one-fourth sequentially. Coal prices averaged $300 per tonne in 2023, while they are currently $315 per tonne.
Average coal prices in 2024, however, are expected to be lower than in 2023 due to increased supplies from Australia in the second half of 2024 from several new mines, particularly in Queensland and New South Wales.
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