Coking coal prices are rising globally on the back of higher demand from steel producers. Gujarat NRE Coke, with mines in Australia, is a major beneficiary of the price rise. India’s demand for coking coal is expected to double in the next three years. Arun Jagatramka, chairman and managing director of the company, spoke to Abhineet Kumar on the subject. Edited excerpts:
New coking coal contracts have settled at $200 per tonne, from $129 per tonne last year. Why such a steep increase?
Coking coal is in global short supply. China turning into a metallurgical (met) coal importer has put further pressure on the global demand/supply position. In 2003, China exported a little less than 10 million tonnes (mt) of coking coal, but in 2009 it imported above 30 mt. The restarting of blast furnaces in the Western economies has led to further demand increase.
Moreover, in the days to come, India’s demand of coking coal is also slated to increase. All these factors led to a steep increase in prices. As economic activity increases, this upward trend is bound to be there.
How do you see the prices moving from here? Another steep rise or only slow and gradual increase?
Coking coal prices are not expected to cool down in the near future. I would not be surprised if prices touch $300 per tonne in the next two to three quarters.
The industry is moving from annual to quarterly contracts. How is that going to benefit you?
The recent move by BHP (BHP Billiton of Australia, the world’s largest mining firm) to enter into a quarterly contract with JFE (JFE Steel of Japan) at $200 per tonne signals future upward movement in the coking coal price in the future quarters. For our company, we expect to produce over 2.2 mt of coal, which translates to about 1.5 mt of hard coking coal. Even at the base price of $200 per tonne, it would mean incremental revenue and profits of around $100 million for the group.
Increased coking coal prices mean increased revenue for the group mining arm at Australia. Moreover, this is being augmented by the price increase of coke, expected to be larger than the price increase in coking coal. This further increases the revenue of the met coke manufacturing arm of the group in India, Gujarat NRE Coking Coal.
How is the coking coal requirement of India going to increase in the next three to five years?
India today is producing around 60 mt of steel. This is expected to increase to around 124 mt by 2011-12 and to cross 200 mt by 2020, on a conservative estimate. As the steel production is set to double in the coming three years, the coking coal demand would automatically double in the same period. In 2008-09, with finished steel production of about 59 mt, India required around 41 mt of coking coal, of which 24 mt was met through imports. For 124 mt of steel, the total import of coking coal in 2011-2012 can safely be pegged at around 75 mt.
Is India expected to overtake China in terms of coking coal consumption? How long is it going to take?
China is way ahead of India. China today produces 600 mt of steel, while India produces 60 mt. Having said that, with the projected growth of 124 mt by 2012, India’s growth rate in steel production would be higher than that of China. But, it would take a long time for India to surpass China in steel production or coking coal consumption.
How is the global demand for coking coal going to increase in the next three to five years?
Global demand would be increasing at the back of demand from China and India. With the recession over, blast furnaces in developed nations are also restarting. By 2013, the global demand of met coal is expected to be around 300 mt, from 230 mt in 2009.
What is your total estimated coking coal production for FY10? What kind of production increase is expected in the coming three to four years?
The estimated production in 2010-11 would be over 2.2 mt. The coking coal production from our Australian mines is expected to increase to around six mtpa in about four years
How do you plan to achieve this?
Gujarat NRE owns and operates two prime hard coking coal mines in Australia, NRE No1 and NRE Wongawilli coal mine. We have already invested A$300 million and are further going to invest A$500 million in developing these mines. We have introduced long-wall mining in the NRE Wongawilli mine to increase production. NRE No 1 mine upgradation is also underway, with the long-wall tender process being in progress.
Are you looking for new mines to meet India’s growing demand?
We are open to acquisitions, but the decision would depend on the specific opportunities.
