After committing big bucks for creating mega capacities, steel producers are on the prowl for coal assets to power existing and future blast furnaces.
KOLKATA: The rush for coal assets is increasing. After committing big bucks for creating mega capacities, steel producers are on the prowl for coal assets to power existing and future blast furnaces.
For Indian steel companies, it’s an uphill run. To support the 124 million tonne anticipated capacity, involving an investment of Rs 8.70 lakh crore, by 2015-16, firms will have to secure domestic iron-ore linkages as well as achieve backward integration with the help of coal assets overseas. This is because there is not much coking coal from mines at home.
Even at current capacity of 50 million tonnes, the demand-supply of coking coal equation is skewed. While the domestic demand for coking coal is estimated at 25 million tonnes, only 8.2 million tonnes is met from mines in the country.
So, while companies like Tata Steel and Steel Authority of India (SAIL) are out to clinch black gold assets in Australia and Africa, the Indian government is working on a draft that can leverage domestic iron ore to lure China in offering more coking coal, through a modified barter trading system.
While Tata Steel will spend $88.2 million to secure 40% of coking coal offtake from Riversdale mining rights in Mozambique, SAIL, along with Coal India, NTPC, NMDC and Rashtriya Ispat Nigam Ltd (RINL), has set up a special purpose vehicle (SPV) with a total corpus of Rs 10,000 crore and equity of Rs 3,500 crore to acquire mining rights overseas.
ArcelorMittal, the world’s largest steel producer, too has set up an SPV with Mozambique’s Black Gold Mining to secure coal assets and establish back integration with its steel capacities. Severstal has picked up a 111 million tonne coking coal reserve in Mongolia. And these are just the first movers.
The price of hard coking coal, which generally plays second fiddle to iron ore, is up 33% at $130 per tonne and is forecast to move to $145 per tonne by July 2008.
India’s domestic supply of coking coal is falling short of demand and by 2015, total imports is forecast at 54 million tonne. Imports are expected to rise to 151 million tonne by 2030 as against 39 million tonne in 2006.
For example, SAIL’s total requirement of coking coal in 2007-08 is estimated at 14.9 million tonne. Bharat Coking Coal Ltd (BCCL), a subsidiary of Coal India Ltd (CIL), has a total coking coal production capacity of around 8 million tonne.
In 2007-08, SAIL will import 11.53 million tonne of coking coal and source only 3.41 million tonne from domestic mines compared with 9.65 million tonne the company imported in the previous fiscal.
In fact, raw material security will hold the key to future plans of Indian steel companies. SAIL is aggressively securing coal assets overseas and fighting to get entire ore reserves of Chiria, Jharkhand for itself.
Tata Steel is no longer self sufficient in raw materials after the acquisition of Corus. B Muthuraman, managing director, Tata Steel, said in an interview in Sydney on Friday that the company will form more joint ventures in Australia to secure additional raw materials.
He said Tata Steel used to supply 80% of raw materials required by its steel mills from its own mines. But after acquisition of Corus this was down to only 25%.
The Indian government is lending its might to support domestic steel producers’ hunt for raw materials. The Union steel ministry is expected shortly to ink an agreement with China for co-operation in iron and steel sector.
The essence of the agreement will be to lure China into an adapted barter deal where Indian iron ore will be offered to Chinese steel mills while Indian companies get greater access to coking coal from China.
Under the proposed agreement, India will be seeking easing of Chinese export quota for coking coal, which has been slashed from to 42 million tonne from 64 million tonne.
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