Govt to auction mines for coal-to-gas, CTL projects in FY18
The government will put under the hammer coal blocks for private coal-to-gas, liquid and polychemical projects this financial year, a top official said today.
"My priority is very clear... coal-to-gas, coal-to- liquid, coal-to-polychemical (CTL). That is something which I want should move... I think very soon, in about two months, we should be coming out with some blocks to be offered to the private sector for these projects," Coal Secretary Susheel Kumar told PTI in an interview.
The development takes on significance as domestic coal gas can help lower the country's import bill by USD 10 billion in five years and cut carbon emission.
"So, Coal India will attempt all this from whatever coal mines they have. Second, fresh coal blocks would be auctioned to the private sector through competitive bidding for exploring coal to gas, liquid and polychemicals. We will auction the coal mine for these projects," the secretary said.
The process of identification of blocks is under way, he said, adding that mines will not be out of the 204 cancelled blocks, but will be fresh ones under the MMDR Act.
"There is a technical committee which is identifying these blocks. So, I have asked them to identify and come back," he said.
Asked to provide a timeline for the competitive bidding, the secretary said, "(It should be) this financial year because we may have to go to the Cabinet. So, let me first get those identified, then we will go to the Cabinet to seek mandate and do it."
India's dependence on petroleum and natural gas can be reduced or done away with if the country manages to secure gas from coal.
"Why we want to do this is very clear. Because it is something which is unexplored for the country. It requires some new technology. It requires new partners. So, those companies who would like to venture into this area should be assured of at least the coal block so that they can plan their investment," Kumar explained.
"We will have to take a mandate from the Cabinet that we want to explore these areas which are non-traditional in the coal sector. Normally, coal is consumed in the sense of burning it... The root is whether it is going to be converted into something very useful... we have to explore that because we don't have enough of gas or oil, but we have coal," he said.
Imports of 4-5 chemicals like urea, methanol, ammonia and ascetic acid are worth around USD 5.5 billion at present.
If the country is able to gasify coal and use the same for production of chemicals, including urea and methanol, it would lower the import bill manifold by 2030.
TAGS #Coal #Economy
Higher coal & iron ore prices to take sheen off steel-makers' Q4 earnings
Despite a sequential improvement in realization of Rs 1,500-2,000/tonne, Elara Capital expects operating income of steel manufacturers to be hit on the back of higher coal costs. The brokerage expects JSW Steel to be affected the most as it has been hit with both higher coal cost (up by Rs 3,400/tonne) and iron ore cost (up by Rs 200-250/tonne) in Q4.
A sharp uptick in raw material costs and poor pricing power in the March quarter is likely to dent the financial performance of listed steel-makers. Steel production grew in double digits for many companies during the quarter and realisations improved, but profitability will suffer due a tripling in prices of coking coal to USD 160/tonne in March 2017 from USD 50/tonne a year earlier. According to Essar Steel, input costs have been rising in the last two quarters without any corresponding increase in selling prices as steel companies are unable to pass on the increase to their customers.
Despite a sequential improvement in realization of Rs 1,500-2,000/tonne, Elara Capital expects operating income of steel manufacturers to be hit on the back of higher coal costs. The brokerage expects JSW Steel to be affected the most as it has been hit with both higher coal cost (up by Rs 3,400/tonne) and iron ore cost (up by Rs 200-250/tonne) in Q4.
EBITDA/tonne is expected to go down 26 percent quarter-on-quarter to Rs 5,708. Centrum, too, has a negative stance on the ferrous metals space. EBITDA/tonne is expected to remain muted due to increase in coking coal costs, which cancels out the benefits of the price increase. Volumes remained strong for large steel-makers thanks to strong export sales but this would be negated by higher costs. Tata Steel is expected to be least impacted as it imports only 67 percent of its coking coal requirements and has better backward integration than others.
Over the last few years, steel-makers have been sourcing raw materials based on index prices. The long-term contracts have been replaced with index-based prices, which are often impacted by speculation and events like cyclones. This increases volatility. Many steel-makers in India have been struggling to source coking coal and iron ore over the last few years as supplies have been disrupted for a variety of reasons. Prices of both raw materials in the March quarter have spiked even though steel demand has grown at a modest 3.5 percent in FY17.
Coking coal prices in the fourth quarter of FY17 averaged USD 80/tonne against USD 52/tonne a year earlier. India's steel industry is largely dependent on coking coal imports, supplies of which were disrupted when cyclone Debbie hit Australia towards the end of March 2017 and prices spiked to USD 160-180/tonne.
Madan Sabnavis, Chief Economist of CARE Ratings, said in a note: "The steel companies in India do import coking coal from Australia. Thus, the sharp rise in prices will increase the cost pressure for producers, in turn, leading to a rise in steel prices."
According to Seshagiri Rao, Joint Managing Director and Group CFO of JSW Steel, "Iron ore prices were at USD 40/tonne in January 2016 and they were at USD 90/tonne a couple of weeks ago. There is no reason iron ore prices should go up so sharply since demand has not gone up." Iron ore prices have corrected since then to below USD 70/tonne.
Iron ore to slide below $US50 in 2018, says Westpac's Justin Smirk
Iron ore is destined to retreat back below $US50 a tonne next year as supplies go on rising, according to the top forecaster, who warned that weakening prices will probably encourage the sale of inventories.
The raw material will drop to average $US62 in the third quarter and $US59 in the final three months of this year before falling through 2018 to a low of $US41, said Justin Smirk, senior economist of Westpac Banking Corp. Westpac placed first in predicting prices in the first quarter, according to data compiled by Bloomberg.
Iron ore was whipsawed last week after hitting a near six-month low as investors weighed signals of strength in the largest user China, including steel output at a record in March, against prospects for rising supply. Top miners including Brazil's Vale are bringing on new capacity, bolstering seaborne sales, at the same time that miners in China have been reviving production. Smirk said that there'd been a huge ramp-up in Chinese supply.
"As supply builds up and prices come off, people will begin to question the wisdom of holding on to inventories," Smirk said in a phone interview on Friday. "The signs are now pushing in one direction: while we'll get some volatility, the momentum is just on a downward trend now."
Spot ore with 62 per ent in Qingdao fell 2.5 per cent to $US66.53 a tonne on Monday following a volatile week, according to Metal Bulletin. The commodity - which hit $US94.86 in February - averaged $US86 in the first three months of 2017 and is averaging $US72.32 so far this quarter. Futures in Dalian and Singapore fell, with the SGX AsiaClear contract as much as 3.9 per cent lower.
Bears see rising downside risks
The outlook from Sydney-based Westpac - which also placed first for forecasting base metals - contrasts with Australia & New Zealand Banking Group's view prices will settle between $US70 and $US80 over the rest of this year. Many other banks are pessimistic, including Barclays, which said in a note on Monday that while iron ore may recover in the short term, it'll slump toward $US50 by the fourth quarter as fundamentals deteriorate.
Goldman Sachs attributed iron's recent drop to mills destocking, traders being forced to sell holdings as prices began to fall, as well as a decline in steel margins, according to an April 20 report. Earlier this month, the bank flagged prospects for iron ore weakness in the second half.
Among reasons cited by bears for a weaker outlook is the potential for more supply, both from mines in China and overseas. Mainland miners boosted production 16 per cent in the first three months of 2017, official data showed. In Brazil, Vale posted record first-quarter output as the world's largest shipper started exports from its $US14 billion S11D complex.
On Monday, Anglo American added to the picture of rising global production, saying output rose 21 per cent to 14.8 million tonnes in the three months to March 31. Operations at its Minas Rio project in Brazil are ramping up toward a target of 26.5 million tonnes a year, the London-based company said in a statement.
Steel slumps
Steel prices in China have been dropping, with the spot price of hot-rolled coil down almost 20 per ent this year, according to Beijing Antaike Information Development Co. "We've also seen steel prices tipped over and margins of steel mills being compressed," said Smirk. "The whole demand-driven supply shortage late last year that boosted Q1 has actually been reversed."
There are tentative signs the stockpiles of iron ore at China's ports may be starting to be sold off, according to Smirk. After peaking at 132.5 million tonnes on March 24, holdings have dropped for four weeks, the longest streak since September, according to Shanghai Steelhome E-Commerce Co.
"If inventories were unwound and dumped onto the market, there's a greater momentum for the downward side," said Smirk, who's tracked commodities for more than a decade. "That would be a very nervy sign for the market."
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