Ennore Coke negotiates for lower coking coal prices

In the wake of softening prices of coking coal in the international market, Ennore Coke Limited, a domestic manufacturer of metallurgical coke, is negotiating with its global coking coal suppliers like Rio Tinto and BHP Billiton, to secure an annual long-term contract of the raw material at $140-150 per tonne.

“At present, we are buying coking coal from our overseas suppliers at around $160 per tonne and we are negotiating with them to fix the price at $140-150 per tonne for a long-term contract. We are seeking a lower purchase price for coking coal as spot prices of the raw material in the international market have dipped this year and steel makers are also pressing for lower prices”, Ganesan Natarajan, president and chief executive officer, Ennore Coke told Business Standard.

Ennore Coke was looking at long-term coking coal contracts as its requirement for the raw material which currently stands at about 7,20,000 tonnes per annum is set to go up significantly in the next two years

The company would have a coking coal requirement of 1.3 million tonnes per annum for its proposed one million tonne per annum at Dhamara port in Orissa which is scheduled to be operational by the end of 2010. It is also scaling up the capacity of its coke plant at Haldia (West Bengal) form 1.5 lakh tonnes to 3 lakh tonnes per annum.

Ennore Coke’s plans to negotiate coking coal prices comes close on the heels of a similar move by the domestic steel makers whose bottomline was significantly impacted due to higher coking coal prices in 2008.

Steel Authority of India Limited (SAIL) reported a 56 per cent decline in its net profit during October-December of 2008-09, compared to the corresponding period of the previous fiscal. SAIL’s profitability was primarily impacted by rising prices of coking coal which had pushed up the steel PSU’s expenditure by Rs 2,641 crore.

JSW Steel posted a net loss of Rs 127.5 crore for the third quarter of 2008-09 mainly on account of higher prices of coking coal.

JSW Steel has already negotiated coking coal prices with global mining major Rio Tinto at $175 a tonne for January-March 2009 and expects its annual long-term coking coal contract to close at $100 a tonne for 2009-10.

The average price of coking coal in the international market jumped from $96 a tonne in 2007 to around $300 in 2008. Steel makers were now seeking lower prices of coking coal owing to falling steel prices and slump in the demand for raw materials like coking coal in the wake of the prevailing economic recession.

Recent sales of coking coal in China were in the range of $130-150 per tonne. Australia-based Macquarie Group Limited, a global provider of banking, financial and advisory services has forecasted a benchmark price of coking coal at $110 per tonne for 2009.

Meanwhile, the steelmakers, both domestic as well as overseas, are also negotiating with Ennore Coke for lower prices of metallurgical coke.

Ennore Coke is supplying foundry coke to the steel units at $420 per tonne and the steel makers are negotiating for a price of around $300 per tonne, said Natarajan.

Ennore Coke exports nearly 45 per cent of its total coke production to countries like US, Saudi Arabia and Iran and the company aims to raise its export share to 60-70 per cent in the next few years.