BackTata Steel, SAIL team up to search for coal
Tata Steel, SAIL team up to search for coal
PremiumEtched in steel: Tata Steel MD B. Muthuraman (right) and SAIL chairman S.K. Roongta exchange documents after signing the agreement for a joint venture firm to mine coal in India on Thursday.
For decades, a clause in government policy has essentially kept coal, the fuel required to produce steel and power, out of private miners’ reach.
Under the Coal Mining Act introduced after nationalizing the country’s resources in the 1970s, only the steel, power and allied sectors were allowed access to mines for captive use.
Since then, India’s rapid industrial growth has accelerated demand for both thermal coal, used in making power, and coking coal, for steel production. With limited options in India, coal importers and traders have begun hunting for mines overseas, particularly coking coal, a scarce commodity in the country, to cash in on the current economic boom.
Firms such as Kolkata-based Balaji Coke Industry Pvt. Ltd and Gurgaon-based OSD Coke Pvt. Ltd are looking at coking coal mining ventures overseas, in places such as Indonesia and Mozambique, respectively. The country’s largest private coke producer, Gujarat NRE Coke Ltd has acquired mines in Australia.
Steel firms such as Tata Steel Ltd, JSW Steel Ltd and Essar Steel Holdings Ltd also are scouting for mineral concessions from Australia to Africa.
But the race for mineral security and planned entries by sector heavyweights, such as Posco and ArcelorMittal, has created unlikely partnerships. On Thursday, India’s two biggest steel companies—and competitors—signed a joint venture deal here to scout for new coal blocks.
Tata Steel and Steel Authority of India Ltd (SAIL) have decided to form a new company with an initial investment of Rs2 crore. Four coking coal blocks with a reserve of 600 million tonnes (mt) have been identified in Jharkhand, which has 80% of the country’s coking coal reserve. The joint venture will mine and share resources.
“In terms of the joint venture, it’s a significant step for the two companies with a common culture," B. Muthuraman, Tata Steel managing director said of the deal.
India has a reserve of 30 billion tonnes of coking coal, mostly with Coal India Ltd. Of this, only about 12-13mt are mined every year, according to an executive who works for the public sector company and requested anonymity to comply with company regulations.
A lack of efficient mining and availability of quality material at home has created a significant shortfall and steady rise in imports. India imports nearly 19mt of coking coal and about 6.2mt of metallurgical coke, used by steel producers who do not have coke ovens.
Sushil Kumar Roongta, chairman of SAIL, which generated Rs39,000 crore in revenues last fiscal year, says most of the country’s reserve has not been operating efficiently. “While India is not fortunate to have large reserves, whatever we have has not been exploited properly," he said.
Both Tata Steel and SAIL import coal to supplement their raw material requirements, apart from the mineral leases and blocks they own.
Tata Steel, for instance, has a reserve of 150mt at its mines in Jharkhand, but imports about 1.5mt. Tata officials say imports will climb to 3mt as they expand steel production. The mines produce about 5-6mt.
SAIL, meanwhile, has four coal blocks with reserve of 400mt in Jharkhand and West Bengal but the current production is about 3.5mt, company officials said. The company imports nearly 10mt of the raw material, but officials of both companies point out that yields are far less as India does not have top quality steel-grade coking coal.
Prices of both coking coal and coke are expected to shoot up. Chinese spot prices for metallurgical coke have crossed $400 (Rs15,800) a tonne. Long-term coking coal prices, mostly imported from Australia, are likely to shoot up from the current $95 to $150 a tonne.
While the government started allowing steel investors to partner with miners to secure coal supply, observers ask why the policy leaves out private players. “Independent coal mining companies should get access to coal blocks, “ says Dipesh Dipu, India manager for PricewaterhouseCoopers.
Legislation to allow private participation in coal mining has been pending for several years.
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