Steelmakers to invoke force majeure to call for fresh contracts

Indian steelmakers are planning to invoke the force majeure clause and renegotiate short-term and long-term contracts with their clients after a surge in uncooked materials prices, with coking coal costs.

JSW Steel-owned Bhushan Power and Steel said that due to the global supply crunch, there is a shortage in supply of coking coal, available at a very high price. The situation is a force majeure with a net impact is Rs 25,250 per metric tonne (mt).

Force majeure is a situation that cannot be anticipated or managed, making the execution of a contract inconceivable or impractical.

Iron ore was priced around $86 per mt in January 2021, which is now $154 cost and freight (CFR) China together with freight. Coking coal price has raised to $700 Freight on Board (FOB) Australia in March 2022, from $300 in January 2021. Ferronickel costs have increased to $43,000 per tonne, from $35,000 a month ago.

According to the experts, the increase in the price of coking coal is due to a supply crunch from Australia, the biggest supplier of coking coal, due to thunderstorms and flooding, along with the Russia-Ukraine war.

Naveen Jindal, Chairman of Jindal Steel and Power Limited (JSPL) told the media that the company would not invoke the force majeure clause. Instead, it requests its massive clients and long-term contract holders agree to the price hike.

Chief advertising and marketing officer of ArcelorMittal Nippon Steel (AM/NS), Ranjan Dhar, said that there had been several price hikes in March, and there will probably be more in the coming days.

World steelmakers, especially Germany and the UK, have elevated costs by at least 25%.

JSW Steel said that steelmakers had warned that costs might rise unsustainably for producers and clients, forcing low manufacturing. Steel companies are trying to hike prices to counteract the hike in coking coal prices. If the situation persists, there might be production cuts.

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Also read: Top steelmakers ask for federal funding to cut carbon emissions

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