Tata Steel’s Quest for Coking Coal Can End With Mitsubishi Chemical

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Source: www.abc.net.au

It’s been a quest of more than two years and it’s finally about to bear fruit.

India’s Tata Steel Ltd will finally get its hands on a steady supply of coking coal as talks between the company and Japan’s Mitsubishi Chemical Holdings Corp. enter the final negotiations stage for a long-term supply of this vital ingredient in steel-making.

According to media reports, Mitsubishi’s Sakaide plant accounts for about 10 percent of Japan’s total coke output. While around half of the plant’s 3.9 million tons of annual production capacity is to meet demand from Nippon Steel & Sumitomo Metal Corp.’s Kokura steelworks, this would have become idle because of the supply contract between the two companies ending soon.

Mitsubishi Chemical was thus on the lookout for new customers, and Tata’s need for coke has thus come as a life saver.

Two of India’s biggest steel producers, Tata Steel and the government-owned Steel Authority of India Ltd., have been scouting around for a cheap supply of coking coal since 2010. Though the details of the Mitsubishi-Tata deal are yet to emerge, both Tata today's metal prices - MetalMiner IndXas well as SAIL were on the lookout for coking coal at prices around US $160 per metric ton.

Reports stated that in addition to beginning full-fledged supplies to Tata Steel for the first time as early as the end of the year, Mitsubishi Chemical was also looking to secure new supply contracts with two or three steel mills in Japan or abroad.

India’s infrastructure growth is set to see a kickstart from the first quarter of 2013 after Prime Minister Manmohan Singh recently unveiled plans to accelerate infrastructure approvals in order to garner US $1 trillion of investments by 2017 in roads, ports and power plants that will use the metal. Tata Steel thus needed to ensure its supply chain of the vital coal to meet the enhanced demand for steel.

Mitsubishi Chemical had sought to continue supplying coke to the Kokura steelworks, but both companies had later reached a basic agreement to gradually reduce its supplies to the steelworks to zero over roughly three years.

Mitsubishi Chemical’s carbon chemistry business is forecast to generate approximately $2.5 billion (230 billion yen) in sales in the current year ending in March, a 15 percent decline on the year. In cutting ties with Mitsubishi Chemical, the Nippon Steel & Sumitomo-owned Kokura steelworks is ending a relationship that dates back to the 1970s.

Indian Bureaucracy’s Glacial Pace

Indian companies have been looking around for tie-ups with companies, largely in the Asia-Pacific belt, to meet their coal demands (late last year, Tata Power signed a long-term coal supply agreement with Indonesia’s PT Antang Gunung Meratus), although India sits on a very large deposit of coal.

India’s persistent coal shortages, say many analysts, reflect deep-rooted systemic problems (although it may not take an analyst to come to that conclusion). Many within the steel sector have been persistently asking the Indian government to usher in reforms, but there’s been little response.

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