New Delhi: After losing bids to acquire coal mines in Mozambique and Australia, International Coal and Ventures Ltd, or ICVL, a company set up by five Indian state-owned firms, is in talks with the Indonesian government to buy coal blocks in that country, a senior official of the ministry of steel said last week.
These acquisitions will help ICVL meet an internal target of importing at least 5 million tonnes (mt) of coking coal by 2012-13, said Pramod Kumar Rastogi, secretary, ministry of steel. Coking coal is one of the two important inputs for steel making, the other being iron ore. India is self-reliant in iron ore but imports almost 70% of its 25-30 mt annual coking coal requirement.
A delegation from ICVL recently returned from Indonesia after preliminary discussions with the Indonesian government. It will be followed by another delegation. Rastogi did not provide more details about the potential deal.
ICVL—funded by Steel Authority of India Ltd, NMDC Ltd, Coal India Ltd (CIL), NTPC Ltd and Rashtriya Ispat Nigam Ltd—has been trying to acquire blocks in the US, New Zealand and Canada. While CIL was allocated two coal blocks at Motaize in Mozambique in March for thermal coal, used in power plants, ICVL has not yet had any success with coking coal.
Indian steel firms have big expansion plans to meet anticipated demand from the housing, consumer goods and infrastructure sectors. “Hence, it is critical to secure supplies of coking coal by owning captive coal blocks,” Rastogi said.
Arvind Mahajan, executive director at consulting firm KPMG India Pvt. Ltd, said it is critical that a company has access to regular coal supply, both coking and thermal coal, to help minimize price fluctuations. “Though most steel makers have long term supply contracts for raw materials, these are not long term in a real sense,” he said. Most of the contracts are not long enough to hedge steel makers against price fluctuations.
Private firms have been more successful at securing long-term supplies than public sector companies. For example, Tata Steel Ltd aims to ensure secured supply of 60% of its raw materials by 2015, up from 25% now, by strengthening its holdings in overseas mines. In July, Tata Steel Global Minerals Holdings Pte Ltd, a wholly-owned subsidiary of Tata Steel, bought additional shares in Australia-based Riversdale Mining Ltd through market purchases, increasing its holding to 19.38%. It is also evaluating several mines in Brazil and Australia. On 28 August, The Economic Times reported that JSW group is in advanced talks to acquire coal mines in Swaziland in Africa.
Rastogi said the current downturn in the global steel industry makes this a good time to secure supplies before prices of coal blocks firm up as demand revives.