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Coal assets ripe for picking as valuations drop: C.S. Verma

LiveMint logoLiveMint 06-06-2014 Pranav Nambiar

New Delhi: International Coal Ventures Pvt. Ltd (ICVL) is a consortium formed five years ago by Steel Authority of India Ltd (SAIL) and four other state-run companies to acquire international coal assets. It hasn’t succeeded in acquiring any so far.

Starved of good quality domestic coking coal, steel companies including SAIL, Tata Steel Ltd and JSW Steel Ltd, have meanwhile become dependent on expensive imports from countries as far as Australia, Mozambique and the US.

ICVL, with `10,000 crore in authorized capital, isn’t giving up the quest for overseas coal mines. SAIL chairman C.S. Verma said the consortium is evaluating several promising coal assets across the globe to address India’s raw material security concerns. A major hurdle in acquiring coking coal mines has been volatility in the value of the assets, but prices are now favourable for buyers, Verma said in an interview. Edited excerpts:

How concerned are you with raw material security in the country for steel makers given coking coal shortages affecting the sector?

Raw material security has always been a matter of concern to ensure competitiveness and efficiency in steel making. In our `72,000 crore modernization and expansion plan, we have set aside `10,264 crore for augmenting raw material from existing mines and development of new mines.

As for iron ore, we have our own captive mines capable of meeting enhanced requirement of iron ore in the times to come. But given the paucity of coking coal in the county, it should be exclusively earmarked for the domestic steel industry.

That is why we espouse the need to have in place a policy that will enable domestic steel producers to leverage optimally the advantage of India’s iron ore reserves and coking coal for steel production.

SAIL is also a part of ICVL, a joint venture of five promoter companies—SAIL, Coal India Ltd, NTPC Ltd, NMDC Ltd and Rashtriya Ispat Nigam Ltd—for securing overseas coal assets, and is currently engaged in carrying out due diligence of some promising coal mines. One of the impediments faced in making an acquisition of a coking coal mine overseas has been the high level of volatility in the prices. Consequently, there has been a wide fluctuation in the value of assets as well. The current market conditions are favourable for making an acquisition.

How can we speed up clearances that have blocked investments across mining projects in the country?

The statutory clearances relating to mining operations involve various ministries, both at central and state level, and there are well-defined procedures to be followed. To further expedite clearances, there is a need to have a stable policy regime, and improved co-ordination between execution agency and the statutory bodies to help understand compliance requirements. This will eliminate circuitous gaps at the proposal stage itself, and make compliance requirements practically implementable. More importantly, the stakeholder expectations have to be taken into account along with statutory requirements for smooth execution of projects.

How is the mood in the industry currently? What are your expectations from the new government and the new budget?

I am of the view that the steel growth story over the medium and long term remains intact backed by a recent surge in exports, making India a net exporter of steel after seven years. This has resulted in a growth of 4% in steel production in the country in 2013-14, in spite of a not-so-impressive domestic demand.

There is a renewed focus on high infrastructural growth. There would be a boost to capital expenditure and faster implementation of projects. All this should translate to a higher domestic demand for steel.

There have been concerns about delays in your modernization and expansion plans resulting in stagnation of production over the last five years. What is the status?

SAIL continues to be the largest steel producer in India and among the top 25 globally, as on date. This position would be consolidated further once our current modernization is over, which would increase the hot metal capacity to 23.46 million tonnes per annum (mtpa) from the current production level of around 14.5 mtpa.

The short-term focus would be to commission the balance modernization facilities at the earliest and ramp up production to the rated capacities from the new units.

As for the long-term objectives, SAIL has drawn a plan for its Vision 2025, which aims to place SAIL amongst the top global metal and mining companies with a production capacity of 50 mtpa. The necessary enablers with respect to land, human resources, iron ore linkages are already in place for further capacity enhancement to 50 mtpa by 2025-26.

Is the 2025 target of 300 mtpa steel realistic? Do we have enough domestic capacity to absorb such huge quantities of steel in India?

In the past 10 years, the consumption growth of finished steel in India has been in the range of 9% per annum. Even a modest recovery in overall GDP (gross domestic product) growth of 6-7% will increase the finished steel consumption of India close to a band between 200 and 225 mtpa by 2025 from the current level of around 74 mtpa. Moreover, with a per capita steel consumption of only 59kg against a world average of 220kg, there is a tremendous potential for increasing steel consumption in the country.

A finished steel consumption in the band of 225-250 mtpa translates into a requirement of 300 mtpa of crude steel capacity in the country, after taking into account crude to finished conversion ratio and reasonable capacity utilization. With India placed favourably in the global cost curve, it is expected that India would also be exporting a substantial quantity of steel and would be a net exporter.

How are things looking globally, particularly with China’s growth slowing? What measures do we need to take to boost exports?

China accounts for about 48.5% of crude steel production and 47.3% of finished steel usage globally. China, which grew at around 6% in 2013, is expected to slow down to a 3% growth this year. However, at the global level the steel consumption growth is expected to remain intact as the developed economies—the US and the EU (European Union)—are expected to perform relatively better. World Steel Association has forecast that the global steel usage will increase by 3.1% in 2014 and further 3.3% in 2015.

Even though the main objective of the Indian steel industry at present is meeting the domestic demand, we are expanding our product offerings to suit international buyers. New products will soon be rolled out from our modernized facilities using cutting-edge technology and strict quality controls.

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