Informist, Tuesday, Jun 22, 2021

By Avishek Rakshit and Nikita Periwal

KOLKATA – Coal India Ltd's plan to secure long-term contracts to supply semi-coking coal to the country's steelmakers may draw a tepid response from big players.

The coal producer plans to initiate discussions with steel companies, including Tata Steel Ltd and JSW Steel Ltd, to enter into 20-30-year long agreements, assuring them of steady coal supply.

A senior Coal India official told Informist that the company was also ready to waive the performance incentive to push sales of coking and semi-coking coal.

Under the prevalent clause for fuel supply agreements, if Coal India supplies more than 90% of the contracted amount, the buyer has to pay the company an additional fee of over 90% of the contracted amount.

Most of these fuel supply agreements with non-power consumers have lapsed and not been renewed.

An official with a private steel company said it might be unfeasible to get into a 20-30-year contract with Coal India given the pace of privatisation and the shift towards renewable sources of energy and greener production methods.

The steelmaker's grounds for caution is that the government's shareholding in Coal India has been falling, and its remains unsure about the company's holding pattern for such a long timeframe.

"If there is any change in ownership, we will have to renegotiate with the new majority shareholder; no one can predict the turn of events in 30 years," the official said.

The source added that steelmakers would continue to prefer short-term coal linkages and buy coal on demand, which is the current common practice. They expect dependence on import of high grade metallurgical coal to remain.

Another large private player in the steel sector indicated that it would be open to using Indian coal if the quality improved.

Using Indian coal is in line with the government's push for domestic manufacturing. However, steelmakers wish to be incentivised to process and use this coal.

Currently, India's requirement of coking coal in the manufacturing of steel is met almost entirely through exports. According to provisional data from the coal ministry, India imported 51.29 mln tn of coking coal in 2020-21 (Apr-Mar), slightly lower than 51.83 mln tn in 2019-20.

The senior Coal India executive said that replacing coking coal imports entirely was unlikely, since high grade coking coal wasn't available in the country, but imports of semi-coking coal or weakly coal, with ash content of 19-24%, could be replaced with supplies from Coal India.

"We have built our capacities to supply 2.5-3 mln tn of weakly coal to consumers if the requirement is so," the senior executive said, adding that it would also help clear semi-coking coal stocks with the company, estimated at around 20 mln tn.

Steel companies, meanwhile, have been pushing their green technologies agenda.

Tata Steel is exploring new manufacturing processes such as scrap-based electric arc furnaces and gas-based direct reduced iron, along with investments in carbon capture use and storage. Simultaneously, it is assessing long-term supply of key inputs such as clean electricity and biomass for hydrogen production and securing alternative resources to reduce emission.

JSW Energy Ltd, part of the JSW Group, has set a target to become carbon-neutral by 2050.

In 2020-21 (Apr-Mar), while 124 mln tn of coal was auctioned by Coal India, only 65-66 mln tn was lifted by buyers. This was even after one of its subsidiaries, Bharat Coking Coal Ltd, which primarily produces coking and weakly coking coal, was offering discounts to clear its stockpiles.

The remaining coal is expected to be sold this financial year, and with the rebound in coal demand, Coal India is considering raising prices.

At 1237 IST, shares of Coal India were up 1.1% at 149.05 rupees on the National Stock Exchange.  End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Patricia Hou

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