India sets its sights on Mongolian coal
MUMBAI (MINEWEB) - In a bid to reduce costly imports and excessive dependence on Australian coking coal, India is all set to acquire a coal mine in Mongolia and set up the first steel plant there. The Indian government says the plan is to first supply the coal needed for the steel plant and then export the rest to India.
The country is battling a massive shortage of coal. Interestingly, for the first time last year, China imported more coal from Mongolia than from Australia. By securing its own feed, and especially with Australian coal prices hitting the roof, analysts say India will soon be able to tap into what is considered a rich resource.
Coking coal prices from Australia shot up last year, to more than $300 a tonne, after floods took out 16 million tonnes of annual production from Queensland mines, in late 2010 and 2011. An analyst with Mumbai-based brokerage firm Pinc Research said the drastic rise in prices hit the bottom lines of Indian steel makers, who rely mainly on imports to meet their requirements.
"Coking coal prices, which shot up to around $320-$350 a tonne, did not come down despite normalcy being restored in the Australian mines. Australian coking coal prices shot up from $125 in 2010 to $350 in 2011. Currently it is moving between $200 and $230 per tonne. The profit margins of most energy-intensive industries in India such as cement, aluminium and sponge iron have come under pressure in the March quarter due to this,'' said an analyst.
Moreover, Australia's Mineral Resource Tax that will levy a 30% tax on the profits of iron ore and coal mining companies, got approved by the Australian Senate on March 19, 2012. The tax is due to start on July 1, 2012 and is expected to generate AUD$ 11.0 billion in its first three years. Australian miners will likely pass on the cost hike to their customers - steel producers in India - impacting profitability. Pinc Research estimates the tax will push up coking coal prices by 4%.
India currently imports a major chunk of coking coal from Australia and with India's steel capacity going up over the next 18 months, the coking coal demand is expected to move up equally.
The new agreement in Mongolia is set to help ease the burden. An Indian delegation comprising the chairman of the Steel Authority of India, C S Verma and U P Singh, joint secretary in the Ministry of Steel are in Beijing and are to visit Ulaanbaatar to formalise the accord.
Speaking to newswires, Verma said the memorandum of understanding with the Mongolian government would be for the allocation of coking coal mines. He told newspersons that the Indian government has been in talks with their counterparts in Mongolia for about a year on the issue.
Despite abundant coking coal mines, Mongolia does not have any steel plant of its own. Verma said Mongolia has very good quality coking coal mines and that India does not have such quality coal mines. The reciprocal arrangement would be to set up a steel plant there and the Mongolian government would, in turn, allocate coking coal mines.
Acquisition of the mine would be the first attempt by India to cut away from its dependence on Australian coking coal. India is Australia's second biggest market after China, exporting about 32 million tonnes last year.
India imports around 60% to 70% of coking coal from Australia, while the rest comes in from the US and New Zealand. With demand from the steel sector hovering near 55-60 million tonnes, and with plans to expand steel production to 200 million tonnes by 2020, India has been seeking securitisation of coking coal.
Mongolian coal also has a price advantage over Australian imports. Mongolian coal is substantially cheaper, by $50-$70, than Australia's coal supply. Mongolia also has estimated coal deposits of up to 152 billion tonnes. Coking coal accounts for about 35% of the country's coal deposits.
With close proximity to India, transportation costs from Mongolia would be cheaper. Companies pay $25 a tonne for transport from Australia.
The world's biggest user and producer of coal, China, has also been looking to Mongolia to meet its demand. China's total coal imports in 2011 were 182 million tonnes, up 10.8% from a year ago. Net imports (lignite excluded) amounted to 167 million tonnes, increasing 15.1% year on year. In December alone, China imported 21 million tonnes of coal.
Mongolian coking coal occupied 43% of China's total imports in 2011, up from 32% a year ago.
Analysts said the competitive price of Mongolia coking coal is also making it a hot favourite. During Q1-Q3 2011, the average sale price for imported coking coal from Mongolia was $75.5 per tonnes as compared to Australian coking coal's price of $221.4 per tonne.
The country is battling a massive shortage of coal. Interestingly, for the first time last year, China imported more coal from Mongolia than from Australia. By securing its own feed, and especially with Australian coal prices hitting the roof, analysts say India will soon be able to tap into what is considered a rich resource.
Coking coal prices from Australia shot up last year, to more than $300 a tonne, after floods took out 16 million tonnes of annual production from Queensland mines, in late 2010 and 2011. An analyst with Mumbai-based brokerage firm Pinc Research said the drastic rise in prices hit the bottom lines of Indian steel makers, who rely mainly on imports to meet their requirements.
"Coking coal prices, which shot up to around $320-$350 a tonne, did not come down despite normalcy being restored in the Australian mines. Australian coking coal prices shot up from $125 in 2010 to $350 in 2011. Currently it is moving between $200 and $230 per tonne. The profit margins of most energy-intensive industries in India such as cement, aluminium and sponge iron have come under pressure in the March quarter due to this,'' said an analyst.
Moreover, Australia's Mineral Resource Tax that will levy a 30% tax on the profits of iron ore and coal mining companies, got approved by the Australian Senate on March 19, 2012. The tax is due to start on July 1, 2012 and is expected to generate AUD$ 11.0 billion in its first three years. Australian miners will likely pass on the cost hike to their customers - steel producers in India - impacting profitability. Pinc Research estimates the tax will push up coking coal prices by 4%.
India currently imports a major chunk of coking coal from Australia and with India's steel capacity going up over the next 18 months, the coking coal demand is expected to move up equally.
The new agreement in Mongolia is set to help ease the burden. An Indian delegation comprising the chairman of the Steel Authority of India, C S Verma and U P Singh, joint secretary in the Ministry of Steel are in Beijing and are to visit Ulaanbaatar to formalise the accord.
Speaking to newswires, Verma said the memorandum of understanding with the Mongolian government would be for the allocation of coking coal mines. He told newspersons that the Indian government has been in talks with their counterparts in Mongolia for about a year on the issue.
Despite abundant coking coal mines, Mongolia does not have any steel plant of its own. Verma said Mongolia has very good quality coking coal mines and that India does not have such quality coal mines. The reciprocal arrangement would be to set up a steel plant there and the Mongolian government would, in turn, allocate coking coal mines.
Acquisition of the mine would be the first attempt by India to cut away from its dependence on Australian coking coal. India is Australia's second biggest market after China, exporting about 32 million tonnes last year.
India imports around 60% to 70% of coking coal from Australia, while the rest comes in from the US and New Zealand. With demand from the steel sector hovering near 55-60 million tonnes, and with plans to expand steel production to 200 million tonnes by 2020, India has been seeking securitisation of coking coal.
Mongolian coal also has a price advantage over Australian imports. Mongolian coal is substantially cheaper, by $50-$70, than Australia's coal supply. Mongolia also has estimated coal deposits of up to 152 billion tonnes. Coking coal accounts for about 35% of the country's coal deposits.
With close proximity to India, transportation costs from Mongolia would be cheaper. Companies pay $25 a tonne for transport from Australia.
The world's biggest user and producer of coal, China, has also been looking to Mongolia to meet its demand. China's total coal imports in 2011 were 182 million tonnes, up 10.8% from a year ago. Net imports (lignite excluded) amounted to 167 million tonnes, increasing 15.1% year on year. In December alone, China imported 21 million tonnes of coal.
Mongolian coking coal occupied 43% of China's total imports in 2011, up from 32% a year ago.
Analysts said the competitive price of Mongolia coking coal is also making it a hot favourite. During Q1-Q3 2011, the average sale price for imported coking coal from Mongolia was $75.5 per tonnes as compared to Australian coking coal's price of $221.4 per tonne.
Comments
Post a Comment