Growing sponge iron industry set to up demand for South African coal

Hyderabad-based Maheshwari Brothers Group, the single largest importer of South African coal, is upbeat about the growth prospects in this field owing to a possible reduction in import duties on coal in the forthcoming budget and the growing sponge iron industry.

Of the 2.1 million tonnes of coal that is being currently imported into the country from South Africa, the Maheshwari Group alone imports up to 1.5 million tonnes through its associated companies.

Though the quantum of South African coal coming into the country is just a fraction of the over 20 million tonnes of coal being imported every year mostly from Indonesia, its quality parameters are slowly gaining ground among the quality conscious customers, Bijay Mandhani, group managing director, told Business Standard.

Though priced higher when compared to other imported coal, the South African coal is now becoming the most sought-after in the sponge iron sector owing to its fixed carbon content, which plays a key role in the quality of steel among other features, according to Mandhani.

High sulphur content, high volatile matter and high moisture content in Indonesian coal make it unsuitable for the secondary steel production. Similar problems are found in domestic coal as well, he said.

Mandhani, who addressed a coal conference held in South Africa on January 30-31, 2006, on the invitation of McCloskey that brings out periodical reports on coal market, said competitive pricing and consistency in quality would ensure more imports from South Africa.

Incidentally, the sponge iron production in India witnessed a sharp rise since 2002, resulting in almost doubling of the production capacity in the last three years "� from 5.5 million tonnes to over 10 million tonnes a year. Of this, coal-based sponge iron industry has steadily grown capturing around 55 per cent of the total sponge production and the balance is contributed by gas-based sponge production units, according to an estimate.

With the secondary sector, which is heavily dependant on sponge iron as raw material, growing by the day, this sector is creating an indirect demand for coal.

Besides sponge iron units, the group's clients also include cement units, paper mills, solvent plants with coal supplies ranging from 50,000 tonnes to 1.5 lakh tonnes. The group operates at all the important ports at both the eastern and western sea coasts of the country to cater to the industries located near these ports.

The demand-supply gap, which is expected to continue except during the year 2011-12 as projected by the Union coal ministry and the positive steps taken by the Centre in encouraging coal imports to bridge this gap, has also encouraged the Maheshwari Brothers group to look for its own mines overseas. According to Mandhani, his company is now planning to enter the coal mining activity both in South Africa and Indonesia.

Apart from being a leading stock and sale entity for coal among the medium-level players in South India, the group has also emerged as one of the largest coal washing capability in the country with an installed capacity of 12 million tonnes with further expansion of 9 million tonnes under implementation.

According to Mandhani, the coal washeries set up by the group at several coalfields including one at Singareni Collieries, supply washed coal to several state power utilities in Andhra Pradesh, Maharashtra and Karnataka.

The dependence on coal imports will continue to grow further if the Indian coal sector is not opened up for private sector, says Mandhani.

"India sits on huge coal reserves, which the public sector is unable to tap. The decision to allow FDI in coal mining is a good step to increase the domestic coal production. The government should also allow local private players to undertake mining alongside captive mining," Bijoy Mandhani said.