Both in terms of the size of proven reserve and its quality, there is little to write home about coking coal here. The domestic supply, as a consequence, will remain such that the import dependence of that portion of the industry making steel through the blast furnace (BF) and basic oxygen furnace (BOF) route will continue to rise as it commissions new capacity at a rapid pace. To support this process of commissioning new capacity at regular intervals will require the industry to step up imports of coking coal from 30 million tonnes (mt) now to 65 mt in 2016 and then to 90 mt in 2020.
Steel Authority of India Ltd (SAIL) is investing Rs 72,000 crore to lift annual crude steel making capacity to 21.4 mt from 13.8 mt. The issue of long-term security in coking coal supply should be seriously engaging the attention of Chairman Chandra Sekhar Verma. As we know, he wants to partner South Korean Posco in, ideally, an equally-owned venture to build a 3-mt steel mill at Bokaro, using the former’s patented Finex technology that makes hot metal from iron ore fines and non-coking coal. The attendant mini flat mill, in a revolutionary way, allows direct casting and rolling in a single sequence. This and also the absence of coke oven batteries will need 60 per cent less land than is the case with a BF-BOF mill of identical size.
Finex technology has many scoring points for Verma to be enthused about. But all the expansion capacity that SAIL has in the pipeline or, for that matter, Tata Steel at its Jamshedpur mill, will have to have coking coal as an input. Acquiring coal assets abroad by itself or in alliance with others, as will be the case whenever International Coal Ventures Ltd (ICVL) of which SAIL is the lead partner, and then opening mines abroad is proving to be time consuming. We are, however, told ICVL is close to acquiring a hard coking coal mine in the Bowen Basin of Australia’s Queensland. Incidentally, it is in this region that Tata Steel is a five per cent owner of a long-wall mine joint venture, with a right to buy 20 per cent of coking and PCI coal production.
Maybe ICVL will also meet with luck in Indonesia and Mongolia. Indian steel makers should look at coal assets’ acquisition possibilities ahead of others setting their covetous eyes. Acquisitions will not come cheap, though, with China’s gargantuan appetite having realised the merits of acquiring all kinds of mineral assets in all continents, particularly in Africa, much ahead of others. More, steel majors such as ArcelorMittal, Tata Steel (for its European operations) and Posco are aggressively hunting for steel making mineral properties and having success, too.
Coke acts as the reducing agent and energy source in a BF for smelting iron ore into hot metal. Verma says independent of owning coal mines, steel mills should try to cut coke consumption rates by injecting pulverised non-coking coal in BFs. This amounts to a significant cost saving exercise (and they’re all working on thin margins), as Tata Steel and SAIL are finding to their advantage.
Let’s see to what extent injection of coal dust could be a substitute for coke being burnt in BFs. In the first place, the rule of thumb is 500 kg of coke for making a tonne of hot metal, while about 1.4 units of coking coal is needed to get one unit of coke. Since a unit of coal dust replaces an equal amount of coke, the actual saving of pricey coking coal is 1.4 units. According to best global practice, large BFs with their inner volume ranging from 4,060 to 5,000 cubic metres and an optimum degree of thermal efficiency could accept injection of 200 kg and more of coal dust for a tonne of hot metal. Indian use of pulverised coal is nowhere near this. Things will, however, improve with large BFs, each with capacity to make over three mt of hot metal, getting ready at Tata Steel and SAIL. SAIL will be making attempts to have coal dust injection of 150 kg per tonne of hot metal in its new BFs.
Meantime, Japanese steelmakers have reached agreements with coking coal suppliers for the mineral to be shipped in the current quarter at $206 a tonne (fob), which comes at a discount of 12.3 per cent over the first quarter rate. For second-tier coal, the contract price is $201 a tonne, $29 a tonne lower on a quarter on quarter basis. Falls in coal prices for four quarters in a row after climbing to a record high of $330 a tonne in the second quarter of 2011 bring some relief to steelmakers around the world.
“The development should not, however, distract our attention from the goal of doing with less and less coking coal in steel making,” says Verma. Perhaps he, like his peers in the industry, sees upside potential in coal, starting the second half of this year. Based on interviews with mining firms, steel makers and experts, Bloomberg says average coking coal prices may rebound to $225 a tonne this financial year.