Coal India to maintain prices despite rising international coking coal market

KOLKATA (miningweekly.com) – Coal India Limited (CIL) has decided to maintain its domestic coking coal prices to liquidate stocks and offer an import substitution window to local steel producers, as international coking coal prices surge.

According to a CIL official, by maintaining prices of domestic coking coal, CIL expects to woo domestic steel producers that, according to two analysts’ reports, have booked imported coking coal at an average price of $200/t for October to December deliveries.

The official said that CIL had sufficient coking and thermal coal stocks. Besides maintaining domestic prices, the miner would also ramp up volume to give local steel mills the opportunity to shift to domestic dry fuel.

While welcoming the CIL move, steel company officials have expressed reservations over the move’s impact on steel production costs. They maintained that steel companies were yet to work out cost benefits of using domestic coking coal, compared to the landed cost of coking coal, once railway freight charges were factored in, particularly for steel mills located along the coast.

CIL officials said that most of the greater supply of coking coal to steel companies would be through forward auctions to be conducted by CIL over the next three to four months of the current financial year.

In the current round of forward e-auction, which got under way on Wednesday, CIL had put on offer 20-million tons, the official said.

Depending on the response to the current auction round, CIL had the ability to progressively increase volumes on offer and such volumes would depend on offtake at the ongoing auction, he added.

Meanwhile in a related development, at odds with CIL's move, large Indian steel companies have requested that the government scrap the 2.5% import duty on coking coal in light of rising international prices.

In a memorandum submitted to the government ahead of Union Budget 2017/18, steel majors including Tata Steel, JSW Steel and Essar Steel, pointed out that coking coal had been exempted from import duty until 2014.

Considering the rising international prices, the steel producers believe the government should scrap the duty to enable steel companies to reduce costs of production and to cope with depressed demand and prices.

Steel company officials claim that the Steel Ministry had assured them that it would support the demand with the Finance Ministry, which had started preparatory work on the national Budget.

According to published data of the Steel Ministry, in the current year, India has imported an estimated 50-million tons, compared with 43-million tons shipped in 2015/16. Imports are forecast to rise to 190-million tons by 2025 by which time steel production is targeted at 300-million tons a year.