Global coal suppliers bullish on Indian market: Report

International coal suppliers are bullish on the Indian coal market, expecting fresh demands, as the domestic sector is failing to cut ice with the major coal users, mostly power, steel and cement industries, in terms of quality and availability of indigenous coal in the next few years, The Hindu Business Line reported recently.

Coal producers in Indonesia, Australia, South Africa and China are ramping up their production and export gear, anticipating a steady growth in India's imports. The overseas coking coal suppliers are especially buoyant, as the Indian steel industry continues to lean heavily on imports to meet its requirements.

Indonesia was the leading coal exporter to India in the last fiscal, accounting for nearly 38 percent of the country's coal imports, with South Africa, China, Australia and Russia contributing to about 21 percent, 19 percent, 17 percent and 2 percent of the imports, respectively.

While Indonesia is trying to market itself as the "natural supplier" of coal to India, Australia is looking for consolidating its presence in the domestic coking coal market, with the Indian steel industry poised for a significant growth in the coming years.

Australian coking coal exports to India have increased from about five million tons in 1990 to about 12 million tons in 2001, which represented 11 per cent of the total Australian coking coal production that year. Among other things, Australia is trying to showcase its Curragh mine, located in the Bowen Basin of Queensland, which produced six million tons (3.5 million tons of export coking coal and 2.5 million tons of domestic thermal coal) in 2002.

Last month, Wesfarmers Ltd, an Australian public listed company, which bought the mine from ARCO coal and Mitsui in June 2000, was awarded the rights to develop and mine the Curragh North mining area that is said to contain over 120 million of coal reserves.

Reports indicate that China is also planning to increase its coal exports, with the Chinese State Economic and Trade Commission (SETC) projecting a five per cent rise in exports to 90 million tons in 2003. However, market analysts say, Chinese coal exports will hinge largely on domestic market dynamics, with present indications being that China will face a tight domestic supply because of increased winter heating demand and extra pressure on its rail system.

The Indian coal import market is increasingly coming into sharper focus of the international exporters, especially with the domestic demand estimated to grow from 363 million tons in the current fiscal to 448 million tons by 2006-07 and 620 million tons by 2011-12. As against this demand graph, the availability of indigenous coal is estimated to grow from 336 million tons in the current fiscal to 405 million tons in 2006-07 and 515 million tons in 2011-12. Thus, the demand-supply gap is expected to nudge 43 million tons by 2006-07 and 105 million tons by 2011-12.

The demand-supply gap will, understandably, be more in the coking coal segment. Out of the present domestic coking coal consumption of 25 million tons, only 8.2 million tons is being met through indigenous sources, while the remaining is being imported.

Steel industry representatives point out that with the production of indigenous coking coal gradually coming down both in terms of quality and quantity, India will have to lean harder on imports.

What is particularly affecting the steel industry is the fluctuation in the ash content of washed indigenous coal, which varies from 19 percent to 21 percent and sometimes even touching 25 percent, while the steel plants were designed for an average ash content of about 17 percent. The ash content in raw coal has also deteriorated from about 24 per cent some years ago to about 30 percent.

The domestic cement industry, which today ranks second in the world after China with a production of 108.40 million tons last fiscal, is also dependent on coal to a significant extent. With the production expected to touch the 165- million tons mark by 2006-07, the requirement of coal will correspondingly increase to about 24 million tons.

In the light of this, the cement industry has been depending on coal imports, which peaked to 6.44 million tons in 1999-200 and then started falling to 4.40 million tons in 2000-01 and 3.33 million tons last fiscal in the wake of rising CIF values and import duty.

Cement industry representatives say that in spite of the longer lead time and capital blockage associated with coal imports, several industry players are still going for it because of the high calorific value, low ash content, low moisture and credit facility at international rates that imported coal involves. The industry is, however, trying to stem imports by using alternative fuels such as petroleum coke and lignite.

Bright scope for fuel outsourcing companies

While foreign coal suppliers are eying with sharper focus India's growing imports, the local market dynamics are likely to open up a new commercial avenue in the form of outsourcing of supplies for domestic coal users.

With business houses worldwide going for development of areas of core competence and shedding operations that fall outside the ambit of their core activity, the trend towards outsourcing seems to be gaining new grounds. Outsourcing is reported to have facilitated end-users to concentrate on areas of their competency, tap external expertise, lower operating costs and improve economics of scale.

Market analysts say that outsourcing companies, having a network of international coal suppliers and equipped with infrastructure to handle the entire gamut of operation, from identification of the supplies to shipping and transportation, can tie-up with domestic coal users in the power, steel and cement sectors.

Says Ahmed Buhari, CEO of Dubai-based Coal & Oil Co (COC): "I see a lot of scope for fuel outsourcing, including coal, in India. Outsourcing is gaining momentum as the focussed service provider meets the requirements of cost-effective product supply and taking over the responsibility of non-core functions of the end-user's business.''

COC has supplied about six million tons of coal and other fuels during the last few years to various companies in India, including Tata Power, Tata Chemicals, Gujarat Narmada Valley Fertiliser Co, Tamil Nadu Chemicals & Products, Mysore Paper Mills, Ahmedabad Electricity Co and Calcutta Electricity Supply Corporation.

Outsourcing of supplies can especially help smaller importers, as they could get a better price from the outsourcing companies, who would get a price advantage from bulk procurement in the international market.

With the dependence of the Indian steel, power and cement industries on coal likely to grow, experts feel that outsourcing companies can expect new market opportunities. (*)