Coal-parched steel, aluminium firms battle lower utilisation, higher costs

With the domestic thermal coal shortage worsening, the aluminium industry and secondary steel producers are witnessing a sharp drop in their utilisation levels amid increased costs.

Both domestic steel and aluminium fall under the non-regulated sector. While the former relies on thermal coal as a key raw material to produce sponge iron, aluminium smelters have captive power plants that require the fuel as feedstocks.

“The utilisation levels for secondary steel producers have dropped to 60 per cent from 80 per cent earlier. It is a tough situation for them,” V R Sharma, managing director of Jindal Steel & Power, told Business Standard.

Even if coal is available, prices have shot up to 2.80 per mega/cal from 0.70 mega/cal -- the usual price point, said industry officials.

The Federation of Indian Mineral Industries in its letter to the Ministry of Coal has highlighted the plight of the two industries, suggesting remedial measures to overcome the precarious situation arising due to the restricted coal supplies and rail rakes.

“The coal shortage situation has brought the captive power plant-based industries and medium and small enterprises almost to a grinding halt. Increased prices of finished products are further causing burden for the end consumer,” the federation said in the letter dated October 6.

Domestic sponge iron prices have shot up to Rs 36,000 a tonne from Rs 27,000 a tonne three weeks ago. The prices were around Rs 22,000 a tonne six months ago, said Sharma.

The country’s requirement of coal (all consumers put together) is about 100 million tonnes a month, while Coal India produces about 62 million tonnes a month. It is time the coal miner addresses the issue by bringing more mines into operation, said industry officials.

Nearly 50 per cent of the domestic steel industry comprises secondary steel producers, which largely cater for the price conscious and not-so-brand conscious consumers across the country.

“The allocation of coal dispatches in rakes should happen in proportion of 75 per cent (power) and 25 per cent (non-power), in line with the Ministry of Coal circular dated February 15, 2016, for auction linkage,” said the federation’s letter.

Primary steel producers, however, remain unperturbed as they rely on imported coking coal to meet their demand.

“Non-power sectors (aluminium, cement, and steel) are getting hardly 50 per cent of their total requirement from Coal India, with rakes supply coming down to 25 per day from 50 per day earlier. Since this is happening for the last two months, all plants are on the verge of stocking out in one to two days,” said a top aluminium industry official on condition of anonymity.

“Also, auctions are not taking place on time, due to which premiums are skyrocketing to more than 100 per cent in many cases, pushing up the overall cost of production of the finished goods,” said the official.

Among the aluminium producers, Anil Agarwal-led Vedanta Ltd, Aditya Birla group company Hindalco Industries, and state-owned National Aluminium Company Ltd (NALCO) are the top consumers of thermal coal.

   

Cement players, which are yet to see any significant impact on their utilisations, may consider price hikes, going ahead. “Coal prices have more than doubled in the last three months. With costs going up in this manner, cement production is not viable. Sooner or later, the industry will have to go for price hikes. It cannot be timed, but a price hike looks imminent,” said Hari Mohan Bangur, managing director of Shree Cement.