Coking Coal Price Drops, So Indian Steel Companies Step Up Imports

Indian steel companies are trying to quickly sign long-term contracts to import coal at prevailing rates because they think that the coal prices in the international market may increase soon, according to a Business Standard article.

According to the reports, currently coking coal prices in international markets are down by some $10-$15 per ton to $220 a ton, as supplies from Australia have improved recently.

Citing commodity and currency analysts, the report says that Indian steel producers already have agreements for coal in overseas countries. A few steelmakers have even acquired coal blocks in other third-world countries to secure the primary fuel for their steel mills.

On the domestic front, the state-owned Coal India Limited (CIL) is the only source for coal supply for steel mills, power producers and other industries.

Power companies are the biggest consumers of coal in India and these companies are already facing huge fuel shortages. India is the third-largest producer of coal, but the CIL is unable to fulfill the demand — the coal miner is under pressure because of a huge demand/supply gap which has only increased on a year-to-year basis over the last several years.

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.

As per India’s Annual Plan 2011-12, the total indigenous coal supply is planned at 559 million metric tons as against the estimated demand of 696 million tons.

However, at present, Coal India produces 436 million tons of the fuel and plans to enhance this capacity to 464 million tons by the end of the current financial year (2012-13).

It is believed that the gap in demand and supply from domestic sources would exceed 200 million tons by 2017, at the end of a five-year plan period.

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.

Against the overall coal import target of 142 million tons this year, the power sector has been given a target of 55 million tons, and the steel sector 30 million tons.

India imports coal from Indonesia, Australia and South Africa. Until recently, Indonesia was the preferred choice for coal imports by the Indian firms, but as the new coal policy in Indonesia has revised prices, the Indian companies are trying to find other sources.

Now most Indian steel and power companies are looking toward Australia and South Africa for their coal imports. After recovering from flood situations and strike problems, Australia is offering attractive coal prices.

Reports suggest that India currently imports some 30 million tons of coking coal every year, but forecasts suggest that during 2012 and into 2013 imports would top 35 million tons.

TC Malhotra contributes to MetalMiner from New Delhi.

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