These are the best of times for Indian metallurgical (or met) coke producers: A strong rupee and a new 15% Chinese export duty on metallurgical coke, which allows Indian firms to raise their own prices, are expected to boost their profits.
India’s 200-odd metallurgical coke units produced 17-18 million tonnes (mt) last year, primarily importing raw coking coal from Australia and the US and converting it into metallurgical coal. China does not permit export of coking coal. Some Indian units are trying to buy or license coking coal mines overseas.
Thus, Indian producers are operating in an ideal environment—the rupee’s strength favours imports and the manufactured end-product is seeing record-high prices globally. “This has perhaps been the best year for domestic met coke producers,” said Naresh Sharma, president, Indian Metallurgical Coke Manufacturers Association, and managing director of Antai Balaji Ltd in Kolkata. “But China remains the black box as it dominates the met coke trade.”
The extra duty of $35 (Rs1,435) per tonne to be imposed from 1 June by China, which controls 80% of the global met coke business, will increase prices from $230 per tonne to $265 per tonne from China at the freight on board (fob) rate. But steel makers say higher costs of the key ingredient will have an adverse effect on their business. India is the world’s third-largest importer, after Japan and South Korea, of coking coal and the second-largest importer of all coke. Like iron ore, metallurgical coke is needed to make steel in blast furnaces.
On the back of increased demand from India, long-term coking coal prices globally are also set to rise by 22% to $120 per tonne in 2008-09, forecasts a recent report by Goldman Sachs. But coke producers say prices are already hovering about that much, or even more, in the spot market, propelled by uneven supply due to congestion in Australian ports.
Indian steel companies usually place long-term orders for coking coal with Australian mines, varying between $96 and $98 per tonne last year.
Spot prices of coking coal have risen to $110-$130 per tonne, said Sharma.
Steel manufacturers say rising coking coal prices will hit production. “We are covered for this year. But if prices of coking coal continue to rise, it will adversely affect our cost of production,” said P.K. Bishnoi, chairman, Rashtriya Ispat Nigam Ltd. The company’s Vizag plant needs 3mt of coking coal, of which 90% is imported at present. Riding on India’s ambition to produce 180mt of steel by 2020, the country imported 22mt of coking coal last year—mostly consumed by the Steel Authority of India Ltd, Tata Steel Ltd, Rashtriya Ispat Nigam.
India might also fall short of its coking coal needs, according to one estimate, by 75mt by 2011-12.
The supply crunch is sending several steel and coking coal mining firms scouring for coking coal mines in countries such as Australia, Indonesia and Mozambique. Essar Steel already has a prospecting licence in Mozambique.
Kolkata-based Gujarat NRE Coke Ltd is the only company that owns overseas coking coal mines. It will have three mines in Australia, most recently agreeing to buy BHP Billiton’s Elouera mine.
Gujarat NRE president Sumit Kumar Khaitan said the mines currently produce 1mt of coking coal. “We hope to increase our capacity by 6mt by 2012,” he said. But the current euphoria over the rupee’s high might be shortlived, said Asim Agarwalla, managing director of Mumbai-based BLA Coke Ltd. “The exchange rate gives a rosy picture,” he said, “but rising coking coal prices may spoil the party.”