As India is targeting steel capacity of 200 million tonnes (mt) by 2020, a major concern staring in the face of steelmakers is how to secure sustainable supply of coking coal.
Coke made from metallurgical coal is a critical input when steel is made through the blast furnace (BF) and basic oxygen furnace (BOF) route. To our discomfiture, reserves of coking coal here are less than 34 billion tonnes (bt), of which the share of prime grade is only 5.31 bt. In any case, thanks to some pioneering attempts by Tata Steel and SAIL, a good amount of medium coking coal is getting blended with the prime grade.
Going a step further, some local steelmakers are stepping up coal dust injection (CDI) in their BFs to bring down coke rate. Bhilai Steel Plant CEO Pankaj Gautam says “In three years, we will raise CDI to 100 kg a tonne of hot metal," JSW claims to be using nearly 10 per cent less coking coal per unit of steel it makes than others here. Being largely import dependent for metallurgical coal and, therefore, exposed to exchange rate fluctuations bitterly experienced this season, it is incumbent on steelmakers to come close to the best globally benchmarked coke rate. The thumb rule is one kg of coal dust will replace an identical amount of coke, the making of which requires 1.4 kg of coal, in BF. Incidentally, some BFs in operation abroad accept CDI of 200 kg a tonne of hot metal.
Whatever improvements happen on CDI here and the success we may have in employing new age technologies like Corex and Finex, India's import requirements of metallurgical coal, according to a study by ANZ Bank, will climb to 90 mt by 2015 from around 30 mt now. The import projection is based on the perception of the country’s steel production growing at an annual clip of 10 per cent. As India's imports treble in the next four years, it will move ahead of Japan and China, now leading the group of importing countries. China is likely to import 70 mt in 2015.
Coking coal contracts for January-March quarter have been settled at $235 a tonne, down $50 a tonne quarter on quarter. Arun Jagatramka, chairman of Gujarat NRE, owner of 650 mt of hard coking coal resources in Australia, says the health of world steel industry will necessarily have a decisive influence on the mineral price. The contract rate fall is, therefore, to be seen in the context of world steel capacity use in November dropping to 73.4 per cent from well over 80 per cent in the first six months of 2011. November world steel production was down to 116 mt from nearly 124 mt in the previous month. What must also be having some bearing on coking coal prices is close to 10 mt fall in Chinese steel production in November to 49.88 mt from the January level.
Daily Chinese output continued to decline in December as many mills have advanced their repairing and maintenance schedules in order not to add steel supply in a falling market.
Indian monthly production is, however, remain a little over six mt, where steel prices, unlike in China and Europe, are maintained, though in a disappointingly low demand growth environment. Jagatramka will not make a guess as to for how long steel will remain in a low demand groove.
“It could be six months, nine months or more before steel fortunes revive. In the worst case scenario, coking coal will find the bottom at $200 a tonne. But at what point it will hit the ceiling remains a subject of speculation,” he says. It has been seen more than once how notoriously volatile steelmaking raw materials could be impacting the sustainability of steel industry.
Giving the example of 2004 when coal unmercifully rose to $480 a tonne from the previous year's low of $90 a tonne, Jagatramka says “You will see coal moving to a new highly elevated level from every dip.” Otherwise, why should Gujarat NRE be investing nearly $200 million in upgradation of its two mines in Australia to achieve production of 6 mt by 2015 from an anticipated 2.5 to3 mt in 2012-13?
Installation of long wall mining facilities will cut the coal raising cost for Gujarat NRE by half. Simultaneously, the company, a merchant producer of coke in India, is awaiting environmental clearances to start building a 1.5-mt coke oven unit in Andhra Pradesh. It presently has coke plants in Gujarat and Karnataka of combined capacity of 1.5 mt.
Jagatramka thinks the way SAIL chairman Chandra Sekhar Verma is going about the job of identifying coal resources in places like Australia, Mozambique and South Africa with bagfuls of money in place, he should soon be wrapping a few deals.
These could be outright acquisition of assets or equity partnerships in coal ventures giving access to portions of mineral output. Verma is leading International Coal Ventures Limited, in which shares are held, besides SAIL by some other PSUs.
