In their quest for raw materials security, leading steelmakers here are breaking away from age-old dependence on coking coal imports from foreign mining majors and trading houses to ambitiously bidding for assets abroad. The country’s resources of metallurgical coal unlike thermal variety being highly inadequate – worse still, the share of good quality hard coking coal in total resources being negligible – our import dependence on the reductant material used in blast furnaces (BF) is growing in step with rising steel production through BF route.
Our annual imports of coking coal are now close to 30 million tonnes (mt) and since much of the new steel capacity in the pipeline is BF-based, our imports of the mineral are set to rise to 65 mt by 2015-16. In our coal imports, Australia, abundantly rich in mineral resources and with a business model of feeding the world steel industry with raw materials, has a predominant share of about 85 per cent. Precisely for such heavy dependence on a single import source, our steelmakers had to bear the brunt of supply disruptions and major spikes in coking coal prices in the wake of heavy rain and floods starting December 2010 and continuing for several weeks damaging mines, haul roads and the rail system in Queensland.
Floods are once again visiting Queensland. Gujarat NRE chairman Arun Jagatramka who own 550 mt coal assets in Australia, however, says the “situation as of now is not serious” and if conditions stay normal then prices will move in a range of $200-220 a tonne. For the current quarter though, the price is pegged at $235 a tonne. Whatever the price outlook, Indian steelmakers are now awakened to the risk of being overly dependent on a single source for coal imports. In this context, a recent observation by Jeff Watkins, chairman of coal consultancy company Wood Mackenzie that while Australia and North America will continue to account for the bulk of the world’s seaborne metallurgical coal exports through 2030, they will nevertheless cede some market share to countries like Russia, Indonesia, South Africa, Mozambique and Colombia merits close scrutiny here.
According to Watkins, the share of Australia in coking coal seaborne trade will fall from 59 per cent in 2011 to 57 per cent in 2030 and that of the US from 23 per cent to 12 per cent. In the same period, Indonesia will be raising its share in the trade to four per cent from one per cent, South Africa to two per cent from one per cent and Colombia, seen as the new frontier for the mineral, to one per cent from very little now. It is only recently that swathes of coal deposits, both metallurgical and thermal, in Mozambique have attracted global attention. In fact, Jindal Steel & Power Limited (JSPL) has emerged as one of the three major groups with mining rights in the coal-rich Moatize region of Mozambique bordering Indian Ocean. JSPL is making steady progress with a 10 mt coal mining project and production should start this year. Production will include semi-hard coking coal for use by steel mills and thermal coal. Coal India, too, has arrived in Mozambique where it is doing exploratory and development work at two blocks.
But, it is Brazilian Vale, which making the best of its early arrival in Mozambique, has built a considerable lead over those who came in late. Vale is committing a further investment of $6 billion to double the mine capacity at its Moatize coal project to 22 mt a year from 11 mt it expects to mine initially. Watkins says Mozambique could well support annual production of 40 mt of metallurgical coal by 2030 if infrastructure for efficient evacuation of the mineral is created. In the meantime, SAIL chairman C S Verma, who heads International Coal Ventures Limited (ICVL) says its maiden acquisition of a hard coking coal asset should materialise before the end of this financial year. He is, however, not disclosing the destination where the asset is to be acquired. ICVL is scouting for coal assets, among other places in Australia, the US and Mozambique.
Colombia, which according to consultancy agency IHS McCloskey, has coking coal reserves of around two billion tonnes in four regions, has started figuring on Indian radar. Not only is Colombia well placed geographically, but is also among the few countries in the world to own low volatility coking coal. The only producer of coking coal of some significance in the whole of Central and South America, Colombia has targeted India as an important destination for its coal. The Miami-based Richards Group, the leading facilitator of coal asset acquisition in Colombia, took advantage of the ‘Global Steel’ summit in Delhi to convince Indian steelmakers about many rich coal blocks buying opportunities there.
While some Indian groups have started making inquiries about deposits available for acquisition, London Mining of the UK, Tigers Realm Coal of Australia and MMEX Mining of the US are steadily expanding their coal portfolio in Colombia. A Richards Group official says besides targeting virgin deposits, Indian companies should look at opportunities in Colombia for acquiring several small operating mines for consolidation and capacity expansion.