In an effort to ensure fuel supplies for its steel and power plants, India’s Tata Group initiated talks for a joint venture with South African company Increase Coal (Pty) Ltd., reports Business Line.
The article notes that the proposed venture can produce about 9 million metric tons of metallurgical coal, which is used largely by the steel industry. Citing unnamed sources, the report further says that the coal from the proposed joint venture in South Africa may also be exported to Tata Steel’s Corus plant in Europe.
The talks between Tata and the South Africa’s Increase Coal are at a very preliminary stage and a lot of details need to be finalized.
According to the Business Line article, Increase Coal’s mine is situated about 500 kilometers from the world’s largest coal export terminal, Richard Bay Coal Terminal, which handles coal exports of 91 million tons a year. Richard Bay is positioned between the Atlantic and Pacific coal markets.
Indian steel manufacturers are dependent on coal imports because of fuel shortages on the domestic front. Some big firms have already acquired coal blocks in overseas countries.
With the rising economy, India is developing more power plants requiring more coal in the near future — which is crucial for the power sector, steelmaking, cement-making and other major industries. The state-owned Coal India Limited (CIL) is the country’s major source of coal. CIL accounts for more than 80 percent of India’s overall coal production.
Over the last few years, coal’s demand-supply gap is increasing on a year-to-year basis.
According to rating agency ICRA Limited (formerly Investment Information and Credit Rating Agency of India Limited), the domestic demand-supply gap of coal may considerably widen in the medium-to-long term on the increased demand from the power sector, steel mills and cement plants.
As per India’s Annual Plan 2011-12, the total indigenous coal supply is planned at 559 million tons as against the estimated demand of 696.03 million tons. However, CIL has reduced the production targets at 452 million tons and 454 million tons, respectively, for 2011-12.
Coal shortages in India are likely to increase because of some recent developments and announcements made by the federal government during recent times.
Recently, the Prime Minister’s Office (PMO) has directed CIL to sign fuel supply agreements with power plants that have signed power purchase agreements with distribution companies. This will require CIL to sign supply agreements of 504 million tons of coal during 2012-13, whereas CIL has set a production target of 454 million tons for 2012.
Analysts say that if CIL will follow the PMO directive, power producers may be happy, but the domestic steel mills and cement plants will suffer more coal shortages.
The global economy slowdown has a clear impact on India’s infrastructure segment, and as a result, coal imports have recently fallen in the country. The available data suggest that India’s coal imports fell 13 percent in February from the previous month, as slowing economic growth hurt demand. The data show that the country imported 6.75 million tons of steam and 2.59 million tons of coking coal.
Reports suggest that India could import about 114 million tons of coal in 2011/12. India bought about 82 million tons of coal in 2010/11.
India imports coal from Indonesia, Australia and South Africa. Until recently, Indonesia was the preferred choice for coal imports by the Indian firms, but new coal policy in Indonesia forced Indian companies to find other sources.
TC Malhotra contributes to MetalMiner from New Delhi.