Tata Steel Europe to get cheap coal from Mozambique

Tata Steel Europe will get coal at less than market prices from the Benga coal project in Mozambique, which, part-owned by the company’s Indian parent Tata Steel Ltd, will start production soon, a company official said.

“It’s not very much, but yes, the rates will be slightly lower (than market prices). At this point, we can’t say by how much,” said the official, who did not want to be identified.

Tata Steel owns a 35 per cent stake in the Benga project, with the rest being held by Australian mining giant Rio Tinto. According to an offtake agreement Tata Steel has signed with its partner, the Indian steel maker can use 40 per cent of the total coal production in Benga. The coal from Benga will feed Tata Steel Europe’s operations.

Tata Steel Group Chief Financial Officer Koushik Chatterjee declined to comment on coal prices, but said supply would commence soon. He, however, did not rule out a bit of cost saving in terms of “trade discounts”.

Karl-Ulrich Kohler, managing director and chief executive officer, Tata Steel Europe, on May 18, had told Business Standard the Benga coal would come at market rate, but its quality was high. “For me, it’s good quality coal, secured by offtake agreement and, therefore, we can optimise our production plans accordingly and improve our processes and situation to make coke,” he had said.

The company plans to ship 0.85 million tonnes of coking coal and 0.2 mt of thermal coal in the current financial year. Some coal will also come to Tata Steel’s Jamshedpur plants. The company is self-sufficient on iron ore and meets 60 per cent of its coking coal needs from Indian mines. The rest is imported.

The Benga project, along with the DSO iron ore project in Canada, is crucial for Tata Steel Europe, as the company is striving to be self-sufficient on raw materials. Tata Steel wants the European arm to have at least 25 per cent raw material integration in the next few years and a lot of it will come from the Benga and DSO projects.

The Benga project was initially owned by Tata Steel and Australian miner Riversdale Mining. Last year, Rio Tinto acquired Riversdale. Tata Steel, which had a 26.27 per cent stake in Riversdale, also sold its stake to Rio Tinto for $1.1 billion, but retained its interest in the Benga project

The company had paid $88 million (around Rs 484 crore on Wednesday) in 2007 for the 35 per cent stake in the Benga project.