'Linking revenue share to CIL price may make coal dearer'
Concerned over linking the revenue sharing model to notified price of the state-owned CIL,private miners fear that it may jack up fuel prices.
"Some of the participants observed that linking the revenue share at 1.2 times Coal India's notified price may not be a desirable proposition," said minutes of the meeting with the stakeholders a fortnight ago.
Besides ministry officials, representatives from SBI Capital Markets, JSW Energy, Adani Enterprises, Jindal Steel & Power, Tata Steel, Hindalco Industries and GMR took part in the meeting.
"It was stated that CIL notified price is already on the higher side and linking the revenue share to CIL notified price may result in increasing the sale price of coal by the commercial miner, whereas the objective under commercial coal mining should be to make coal available at cheaper prices," the minutes said.
Under the notified set-up, the prices are fixed by Coal India
During the meeting, it was stated that for auction of other mineral blocks, revenue share is estimated at IBM (Indian Bureau of Mines) notified price itself and no margin is being charged over IBM notified price, according to the minutes.
The contention is CIL's notified price varies across sectors and subsidiaries. Therefore, it is required to be specified which notified price will be considered for estimating the revenue share.
The government has identified four coal blocks that will be put up for auction in the current fiscal.
Commercial mines are alloted without specifying the end use and allow private entities to sell the fuel to buyers across sectors such as power, cement and steel.
Auctions may help private coal miners tap 100 million tonnes
CIL gears up to compete with private competition for the first time since 1973
Private players will be able to bid for mines with about 100 million tonnes of coal reserves in the initial phase of auctions for commercial mining rights, a top Coal Ministry official said.
The auction will follow a simple and transparent process for selecting eligible bidders, he said.
“Today is certainly the right time for allowing commercial mining. The leverage of interested parties to disrupt the supply of coal is minimal, so the timing is right,” said Vivek Bharadwaj, Joint Secretary in the Coal Ministry, brushing aside concerns about the timing of the auctions expected to be held this year
“The commercial miners will certainly find a way to service their own customers. I can tell you that the mines are not of just 70-75 million tonnes, they have an aggregate capacity of 100 million tonnes and if their mining plans are revised, it can go up further. Getting 10% share of the market will certainly make a huge impact on the total (coal) market,” Mr Bharadwaj said, addressing industry members at a coal conference hosted by Assocham.
Public sector major Coal India Limited is gearing up to compete with private competition for the first time since 1973 when coal blocks were nationalised and will shut down all unviable mines in the coming years, the official added.
‘Positive disruption’
Allowing competition in the commercial mining space will create a positive disruption in the market, the official said, citing the precedents of the BSE, State Bank of India and MTNL that once dominated the market but now compete with large new players in their respective sectors. While an Indian consumer can buy anything from petroleum to aeroplanes, the regulated commodity of coal has no retail market.
“If commercial mining can create a market for coal, and I see no reason why there shouldn’t be one, then we can even have a coal price index,” Mr. Bharadwaj said, adding that till that happens, prices will have to be indexed on the basis of other countries’ data.
The eligibility criteria for bidders will be kept simple and the auction process would be absolutely transparent, the official said, promising there would be no complicated norms specifying net worth or experience of the bidders and assigning weightage to different factors.
Coal India is gearing up to meet competition from private miners and will shut down all unviable mining operations over the next couple of years, he said.
“Coal India is closing 37 unviable mines this year. Going forward, they will close several more and in the next two years, you will have no unviable coal mining in Coal India,” Mr. Bharadwaj said. He, however, said the private miners must not try to become more efficient just by exploiting cheap labour.
“Primarily, the cost structure of Coal India comes from its high labour costs.
If the efficiency of the private sector is coming from exploitation of labour, that is not something to be proud of. If the worker isn’t happy, somewhere down the line, it will reflect on the firm’s bottomline,” the Joint Secretary said
Thermal coal demand to cool off
Coal imports into the country are unlikely to rise, thanks to a surge in domestic coal production, but the demand for coal from new thermal power plants is likely to taper off after five years and leave some coal mining assets stranded, according to a report released on Thursday by S&P Global Platts.
“A rapid expansion in domestic production has seen Indian thermal coal imports peak. Targets for boosting output remain ambitious, but are likely to be sufficiently successful to further reduce the country’s dependence on imported coal,” the report on the impact of the government’s ‘Make in India’ program on commodities and energy sectors noted.
“India is no longer the dynamic coal import market of yesteryear. Domestic production will continue to expand, but India’s energy trajectory is becoming less coal-based, raising a real risk of stranded assets,” said S&P Global Platts, a division of S&P Global, adding that some assets will be stranded with no takers for their coal output in the 10-15 year time frame.
Overall, new projects announced under the Make in India program are helping to drive up demand for resources such as oil, coal, petrochemicals and metals. In the case of steel, however, though demand will grow faster, imports could also surge.
“A key imbalance in the Indian steel sector is a lack of high value-added production capacity. This imbalance is expected to widen as a result of the government’s “Make in India” campaign, and the expansion of India’s passenger vehicle market. The latter is expected to reach 9.4 million units per year by 2026, up from 3.41 million passenger vehicles during 2015-16,” the report pointed out.
http://www.thehindu.com/business/Industry/thermal-coal-demand-to-cool-off/article18159791.ece
Coal India seeks longer contracts for power sector
Coal India expects to invite bids for long-term coal supplies to the power sector in the next few weeks as the government is close to finalising the policy for such auctions.
This assumes significance because large power generation capacities are lying idle for want of coal.
Coal India expects to invite bids for long-term coal supplies to the power sector in the next few weeks as the government is close to finalising the policy for such auctions.
This assumes significance because large power generation capacities are lying idle for want of coal.
It will help the state-run monopoly miner pursue its production and sales targets while feeding plants that have been facing uncertainty of coal supplies and thus power generation.
In the meantime, the company has decided to invite long-term bids for 4 million tonnes of coking coal for the non-power sector in its first long-term auction this year.
"We have been given to understand that the government is close to finalising the modalities for auctioning long-term coal supplies for the power sector. Once it is notified we will initiate the auctions," a senior Coal India executive told ET on condition of anonymity.
The quantum of coal to be offered to the power sector in the auction will depend on the policy details, the executive said.
"In the meantime, we have decided to offer 4 million tonnes of additional non-coking coal for the non-power sector. This will be for long-term supply contracts," the official said.
According to power sector officials, about 48,000 mw of power generation is facing uncertainty of coal supplies. the situation has remained more or less the same over the past two years, ever since the government decided against handing over long-terms coal supply contracts on nomination basis.
This 48,000 mw capacity is in various stages of construction and is scheduled to come up by 2020. Of this, projects with 6,000-7,000 mw capacity already have power purchase agreements in place but they do not have coal supply contracts from Coal India.
"A 1,000 mw power plant requires around 4.5 million tonnes of coal a year. If we are able to supply coal to these plants that do not have any contracts, sales could rise by about 200 million tonnes," another Coal India executive said. ..
The company is also planning to offer about 130 million tonnes of coal through its regular e-auction route in an effort to achieve its targets this year.
This will be close to 20% of its total production. The e-auction volume will be in addition to the long-term coal supply contracts.
NTPC board to raise US $6 billion through bonds
State-run National Thermal Power Corporation (NTPC), on Wednesday said its board has approved the proposal to increase the amount to be raised by issuing bonds in international markets to US $6 billion from US $4 billion.
"The Board of Directors, in its meeting held on April 19, 2017, has accorded approval for updating and upsizing the US $4 billion MTN (medium term note) programme up to US $6 billion for raising debt from international markets to part finance capital expenditure on new/ongoing projects, coal mining projects, renovation and modernisation of power stations and for other permissible end uses," it said in a BSE filing.
According to the statement, the board has also approved the proposal to issue Notes up to Rs 50 billion (Rupee denominated bonds) and/or up to US $750 million equivalent (foreign currency bonds other than Rupee denominated) in the international markets either under the MTN programme or on standalone basis in one or more tranches.
http://www.dnaindia.com/money/report-ntpc-board-approves-plan-to-raise-usd-6-bn-via-bonds-2408344
Top six companies drive steel output growth
The top six companies in the steel sector led the growth of crude output in the first nine months of 2016-17.
During April-December 2016-17, the production of crude steel stood at 72.34 million tonnes (mt), a growth of 8.8 mt compared to the same period the previous year. Steel Authority of India (SAIL), Rashtriya Ispat Nigam (RINL), Tata Steel, Essar Steel, JSW Steel and JSPL produced 40.37 mt during this period, a growth of 15.7 per cent over the previous year.
The balance 31.97 mt was contributed by others, which was a growth of 1.1 per cent.
While the top six say their capacity utilisation was 80-90 per cent, that at the smaller entities is quite different. “Capacity utilisation among secondary producers is less than 65 per cent,” said one.
“The big primary producers mostly have captive mines. We have to buy iron ore from the market. Also, there is an issue with railway rakes. The bigger players get rakes,” he added.
There are other issues, too. “Typically, smaller players would have a substantial proportion of long steel products in their portfolio. The bigger players have been able to overcome muted demand in the domestic market by increasing exports significantly. This would not hold for the smaller ones, as international trade is primarily in flat steel,” says Jayanta Roy, senior vice-president at rating agency ICRA.
chart
Sanak Mishra, secretary general, Indian Steel Association, says this rise in export and the government’s protective measures against cheaper imports were major helpful factors to keep capacity utilisation up.
Though the big companies mentioned earlier account for more than half the production of Indian steel, small producers (who use sponge iron, melting of scrap and non-coking coal for steel making) are a sizable lot.
According to the draft National Steel Policy, as on March 2016, there were 308 sponge iron producers that used iron ore pellets and non-coking coal or gas as feedstock to make steel; 1,175 electric arc furnaces and induction furnaces that use sponge iron and or melting of scrap to produce semi-finished steel; and 1,392 re-rollers that put semi-finished steel into finished production for consumer use.
Indian steel industry to see lot of consolidation in next 2-3 years: Ajay Bhat, Monnet Ispat
In an interview with ET Now, Ajay Bhat, CFO, Monnet Ispat, says beyond monsoon, Indian steel is geared for good times and we see a lot of projects coming in and our estimation is that three to four months down the line, whatever little correction you see today is going to be recovered
The street seems divided on prospects of metals in the near term. Do you think the dream run for steel and iron ore prices is over?
When steel started correction a few years ago, we saw prices crashing down on long products from Rs 37000-38000 to almost Rs 23000-24000. In basic metals, we saw the correction coming down from Rs 21000-22000 to about Rs 12000-13000. That was an unexpected major decline which saw all the steel companies in India in the last two years struggling.
In the last six months, prices have been actually been recovering and we are surprised that the recovery was faster than expected. For example, sponge iron which was at about Rs 12000 started to selling at about Rs 18000 which is Rs 6000 jump and long products which were at about Rs 23000, started selling at about Rs 32000-33000-34000. So the recovery was as fast as it was unexpected.
There is definitely a recovery in demand because we are seeing the price strength in all the steel segments and basically it is coming from the consumption side which is happening not only in India but globally as well.
We have also seen a decline in imports in relative terms and there could be a bit of correction. But that is part of volatility because the prices had risen too fast and too quick. I think the prices will settle down but the steel industry has definitely made a comeback
The margins and profitability for all the steel companies in India are definitely going to be better now.There was a lot of effort by all the companies for cost rationalisation, cost reduction and all that is definitely going to get translated into the bottom lines of all the steel companies.
The sector as a whole is going to do much better than what it has been in the last three or four years but it might not go those highs which we saw before.
So for the sector to remain stable it would be better that the current regime of prices and demand sustains. Two, on the supply side, all the expansions in Indian steel companies got completed in 2012 and 2013. We are not seeing any fresh supplies coming in except here and there, some Tata putting up a project in Orissa and JSW increasing the capacity. Rest of the steel companies are not in a position to expand today. We do not have anything coming in from the supply side. Our production of steel is between 90 and 100 million tons and it is going to remain there for a number of years.
So even if the demand grows by a marginal 5% or 6% or 7%, it would be good times for the steel companies.
So what is going to be your pricing strategy? Are you going to see a bit of a dip coming in?
No, I would not see any dip. Because the prices have gone up sharply, there was always an expectation of some correction which is happening and as long as the end use is driven by demand, we do not see any dip in the prices except for the fact that India is vulnerable to the vagaries of monsoon season.
But beyond monsoon, Indian steel is geared for good times and we see a lot of projects coming in and our estimation is that three to four months down the line, whatever little correction you see today is going to be recovered. I see the prices going to back to where they peaked out in October or November.
Could you give me a number that you are working with when it comes to your average realisations at Monnet Ispat?
I can give you some guidance about the prices of products that Monnet Ispat deals with. For example, for sponge iron which we are selling at about Rs 12000, went up to about Rs 18000. I would see that average realisation could be around Rs 16000 on a going consolidate basis.
In the long products, the average realisation could be around Rs 31000- 32000. But Monnet Ispat prices are going to be actually driven by what this particular segment of the industry is going to be doing.
Second, Monnet Ispat deals in all segments of products but essentially it is still seen as a major sponge iron player. In the last four or five years, we have seen a lot of sponge iron players in unorganised sector. Small sponge iron players are closing down. That demand has shifted to major players like Monnet Ispat and that is where we saw that the prices going up very sharply in the last few months.
If the prices of sponge iron average realisation sustain at Rs 16000-17000, products at about Rs 31000-32000 and semis at maybe Rs 26000-27000, you would definitely see the operative margins of companies like Monnet Ispat going up over the last two years.
Vis-a-vis what is happening globally in metals, do you think consolidation is the way to go and would you consider either a sell out or a JV or any other medium?
The consolidation in the Indian steel industry is bound to happen and it is already on its way. Except for Tata Steel and JSW, every second steel company is under debt restructure plan of the banks. Now that debt restructuring is happening, in most cases there would be change in managements. Even where there is no change in management or control driven by the banks, a change in management is going to be driven by the managements themselves. So there would be lot of consolidation in the sector over the next two or three years.
My calculation is that small steel players of 0.5 million ton, one million ton, 1.5 million ton which are essentially overleveraged are not going to survive in India now and are not going to survive in the steel industry over a period of time.
A consolidation is definitely going to happen. As far as Monnet Ispat is concerned, it was under a strategic debt restructuring. That phase has ended and all that bidding has happened. It is for the banks to decide how they want to take this company forward, whether a change in the management will happen or restructuring will happen with the existing promoters. It is still pending.
So all of that that view is being taken by the banks and most of the steel companies right now because there is a challenge for debt restructuring. The viability of the steel companies has undergone a paradigm change.
Even if the replacement cost for setting up a greenfield project continues to be the same, it has become unsustainable today in terms of viability. Whatever expansions have happened in the steel sector in the last 10 years, banks or managements are taking a serious relook into that. There has to be a complete change in the capital structuring of those steel companies. All that consolidation is going to be an inbuilt thing.
Warm Regards
Anurag Singal
Ph: 033-30518415,9088026252
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