In Commodity News 05/01/2016
The Indian government would not revive the auction of nine coal blocks, which was called off last month, until there was a turnaround in the commodity cycle, particularly for steel.
“The fourth round of auction for nine blocks was cancelled owing to poor response from investors. The government was in no hurry to push through the auctions immediately and would prefer to wait until such time better investor response could be expected,” said a Coal Ministry official.
“Domestic supplies are on the rise and imported coal is cheap. From a user industry perspective, there is no immediate compulsion for them to invest in captive coal mines,” he said.
“But with growth outlook in key sectors like steel, cement and thermal power still positive, it will be only a matter of time before demand for fuel rises and the government could well afford to wait for better valuation of coal assets rather than allocate resource at low valuations.”
The Coal Ministry has set aside the nine coal blocks exclusively for sectors such as steel, iron and aluminium, where end-products are not regulated by a government administered pricing regime. Government has received only 15 bids for the nine coal blocks.
Some steel producers said that the quality of coal blocks put up for auction was not suitable for steelmaking and was one of the major reasons for the lukewarm response.
According to an official with Essar Steel, only about 20% of the coal mined from the blocks on offer would be coking coal suitable for blast furnaces, while the balance would be low-grade coal with higher ash content.
Few steel companies would be willing to invest to develop the mines at a time when the steel industry was deep in debt and faced with low finished steel prices. Furthermore, the steel companies were not equipped to get into merchant trading for 80% of low-grade coal produced from the mine, the official added.
With imported coking coal prices down around 60% over the past two years to around $80/t, India’s total import of coking coal, estimated at 35-million tonnes a year, was unlikely to change as steel companies, with highly leveraged balance sheets, did not have the funds to develop greenfield coal mines.
