Re depreciation hits SAIL's finances, with 70% coal import

However, CMD sees domestic prices, demand improving

A 20 per cent fall in global coking coal price has not helped the country's largest steel producer Steel Authority of India Limited (SAIL). The rupee depreciation has come at a time when its retail prices are also under squeeze due to tight market conditions.

"The average price of coking coal was $186 a tonne in 2012-13, which has come down to $150 a tonne currently. Despite this, our margins have shrunk, mainly because of the dip in the rupee and selling prices," SAIL chairman and managing director CS Verma told Business Standard.

The company's coking coal requirement is 13.3 million tonnes annually, with import comprising around 70 per cent. Coking coal is used in blast furnaces for producing steel. About two-third of the imports come from Australia, while the rest comes from the US and a small proportion from New Zealand.

Verma said input prices had come down by 8-10 per cent, but there was a decline in per-tonne realisation by the same percentage. The net sales realisation declined by 10.92 per cent in the fourth quarter to Rs 34,481 a tonne from Rs 38,717 a tonne in the same quarter of the previous year. For the whole year, it was down by 2.19 per cent in 2012-13 as a whole to Rs 36,389 per tonne from Rs 37,202 a tonne. SAIL took a dip of Rs 877 crore only on account of lower net sales realisation for the full year and Rs 1,347 crore for Q4 alone because of the slowdown in the global steel sector which impacted the domestic market as well.

Domestic steel production grew 2.5 per cent in the last financial year. Despite such weak domestic conditions, Verma is optimistic about retail prices. "Whatever dip (in prices) had to happen has happened. In the last five to six months, the prices have stagnated and there is no scope of prices going down further." The demand would also pick up, especially since the country is planning $1 trillion investment in the infrastructure sector, a huge market for steel.

Though SAIL's net profit came down 72 per cent in the fourth quarter (Jan-Mar 2013) to Rs 446.53 crore from Rs 1,576.98 crore a year ago, the company is going ahead with its planned investment. It is investing about Rs 72,000 crore for modernisation and expansion of its plants and mines. Of the total investment, Rs 39,000 crore will be invested in expanding capacity, Rs 10,000 crore in expansion of the captive iron ore mine, Rs 7000 crore each for value-added products and sustainance. Another Rs 3,500 crore would go to technology upgradation.

Though the ban on iron ore mining has hit other steel companies, government-controlled SAIL that used 22.4 million-tonne of ore last year does not have worries on this account due to access to captive mines. In the case of coal, domestic supply is largely sourced from Coal India while its own mines produce about 0.5 MTPA. SAIL, through ICVL (international coal ventures ltd) is also looking at acquiring coal mines outside India. ICVL is conducting due-diligence on three to four mines in Australia, the US and Mozambique, said Verma, who also heads ICVL.