The government on Friday confirmed that the increase in prices of coal from Indonesia has hit power producing companies in India.
“Some power generation companies in India are facing the problem of an increase in the price of imported coal due to new regulations in export of the commodity in Indonesia,” Minister of State for Power K C Venugopal said in the Lok Sabha.
New regulation issued recently by the government of Indonesia prohibits the sale of coal, including sales to affiliate companies, below a benchmark price based on international rates.
Also weakening Rupee against dollar has made imports expensive by 3-4% in a months time.
Prices of Coal, iron ore and other minerals are likely to move
up once the new Mines Bill is approved.
“Prices of all the minerals will go up due to this (the new Mines Bill),
once enacted,” the Federation of Indian Mineral Industries' Secretary
General R K Sharma said.
The Mines and Mineral Development and Regulation (MMDR) Bill, 2011, which seeks
to share 26 per cent of profits by coal miners with project-affected people,
was on Friday approved by the Cabinet. It will be tabled in Parliament's Winter
Coal India Chairman N C Jha said it is a government decision and “we will
have to implement it and the additional cost impact, due to the new act, will
eventually be passed on to the consumersÃ¢â‚¬Â.
A senior NMDC official said, “It will have to be passed on to the
consumers, although were yet to calculate the impact.”
He added that industry is concerned about the percentage of royalty/profit that
industry is expected to contribute and the lack of clarity on a proper
mechanism to compensate project affected persons.
Reacting on the Bill cleared by the Cabinet, industry
bodies, FICCI and Assocham said that the proposed contribution will make mining
unattractive for organised investors including foreign investors.
The tax incidence on coal will increase to 61 per cent and iron ore to 55 per
cent, the industry bodies said.
The Goa government, facing mounting criticism over the mining scam, is likely to revoke clearances given to 19 iron ore mines operating within the 10-km protected zones around wildlife sanctuaries.
In fact, the Goa government has, in the last four years, granted clearances to mines in the buffer zones without the board's nod and defended its decision saying the state advocate general's legal opinion was that clearance from state forest officials was sufficient.
The chief conservator of forests in charge of Goa, K S Reddy, said: “Yes, we have told the [state] government to take action in cases where mines have no clearance from the Wildlife Board.
The state owned iron ore miner NMDC might reduce its prices for Iron ore lumps in next quarter.
Prices may go down by Rs 150-200/MT looking at the sluggish in the steel market, says the President of Sponge Manufacturer Association of Raipur.
Rising prices of coking coal in domestic market and higher prices iron ore from private miners in Orissa are hurting margins for steel industry in Chhattisgarh, he added.
The Cabinet approved on Friday a
bill calling for coal miners to share a maximum 26 percent of their profits
with local communities and for other miners an amount equivalent to royalties,
a government minister said. The bill is expected to be introduced in the Winter
Session of Parliament.
The bill now requires
parliamentary approval to become law and is seen as a major move towards
reform. The Mines & Minerals (Regulation and Development) Bill, 2011, which
seeks to replace a 1957 act, also provides for setting up of National Mining
Regulatory Authority and Tribunal and formation of District Mineral Foundations
in 60 mineral-rich districts across the country.
An estimated Rs 10,000 crore will
be generated per year from the miners and an average amount of Rs 180 to Rs 200
crore will be distributed among District Mining Foundations of 60 mineral rich
districts that include 25 districts affected by Left Wing Extremism.
However, mining companies especially
Coal India is likely to be hit the most as it will have to share one fourth of
its profit, which means lesser money for growth and dividends.
According to coal minister
Prakash Jaiswal, the new bill would speed the approval of land clearances something that both foreign and domestic investors have long complained about
in India. Moreover, he insisted that the new bill will not impact the revenues
of coal companies in the long-term.
All the news surrounding the mining ban in Karnataka has
increased fears of a similar ban in Goa as well, affecting companies like Sesa
Goa which operate in the area.
“Because of the ban in Karnataka, we are seeing FY12
production target fall short by almost 4-5 million tonne,” said PK Mukherjee,
managing director of Sesa Goa. The FY12 target now stands at 17-18 million
Asked about the impact of the possibility rise in the export
duty of iron ore, Mr. Mukherjee said, “We have not factored in this
possibility, but we do not see any issue in iron ore pricing. Actually what is
left for duty increase now? Karnataka has gone, Orissa is struggling to put the
material in the port and now only Goa is left. I do not know who is ultimately
getting benefited with this export duty increase or export ban because even a
company like NMDC is losing thousands of crore per year”
In regards to the e-auction process for mines in Karnataka,
Mukherjee says that they are participating in the process, but they are getting
lower realizations from that. “Currently, we have less than one million tonne
as inventory in Karnataka”
Spot iron ore market
in China have come to a halt with thinning down of trading activities and falling
prices. Offers for Fe 63.5/63 of Indian fines have slipped further to reach $
178/MT. Offers for Australian 62% Newman fines also went down by $1 to reach
“I don't think we'll see much trading today because, if
for some reason, transactions are not concluded within the day, traders will
have to wait until people return to work on Oct. 10 when China get back after
holidays,” said an iron ore trader in China's eastern Shandong province.
Prices of Singapore Exchange-cleared forward swaps dropped
for a second day; with the nearby October contract down by $2.33 to reach
$158.17/MT, at least $12 cheaper than spot rates.
Turkey's import prices of scrap from Europe
have dipped due to depreciated EURO. Turkey currently purchased the HMS 70: 30 (1&2) from Europe with prices of
US$ 420/MT CFR i.e. down by US$ 5-10/MT from previous quote.
The current exchange rate between the US
dollar and the EURO are currently at US$1 : Ã¢â€šÂ¬0.739, decreased sharply from US$1
: Ã¢â€šÂ¬0.694 in the beginning of September. Thus, Turkey received cheaper priced
scrap from the European suppliers.
As Euro keeps on decreasing, market
participants said that the prices of EuropeÃ¢â‚¬â„¢s scrap exported to Turkey likely
to correct further.
At the other end, HMS Scrap (80:20) prices in Mumbai, remained
at the same level at US$ 465-480/MT CFR Nhava Sheva. However, demand for imported
Scrap remains weak as buyers are away from the market. They are not willing to
procure materials at the present offer and expecting Scrap prices to correct
further. HMS Scrap offered at US$ 460-470/MT at Kandla port.
Indonesian government has
circulated a draft decree among coal producers suggesting a ban of exports of
coal below calorific value of 5100 kcal/kg, starting from 2014. This could cut
thermal coal exports by 120-130 million tonnes. One of the biggest hits will be
India which prefers Indonesian coal for its low sulphur content and competitive
Indian companies have a strong
appetite for low calorific value coal from Indonesia. The calorific content
that India imports is below 5,000 kcal/kg and can be as low as 3,500 kcal/kg.
Indonesia is getting weary about
allowing very heavy exports for valid reasons. Indonesian coal exports grew to
270 million tones in 2010, but their own domestic power producersÃ¢â‚¬â„¢ demand for
coal will keep growing. So now Indonesia will set aside 82 million tonne or one
fourth of 2012 production for domestic players. And it will tighten its grip on
What this means for India is more
tightening on coal supply for a country that already has ambitious targets for
power capacity addition but no coal. India wants to add 14 GW of power
capacity in 2011-12. In 2010-11 the state target was 13 GW while 9 GW was
Even to add 9 GW next year, India
needs 40 mt of additional import. The next 5 year plan proposes to add 100 GW
in the next 5 year plan which is not achievable going by the logistical issues
the country faces.
Constraints for importing coal
The biggest problem in improving
coal supply is infrastructure. If you look at new power plants, they are all
closer to the coasts because of lack of railways. But the big issue is also the
ports. Indian ports cannot take capsize vessels which carry more cargo (can get
only panamax freight: which are smaller and expensive) and reduce the cost.
Moreover the average time taken by ships to load/unload at India ports is
almost 96 hours, 10 times longer than in Hong Kong.
Private players like Adani or GVK
or Lanco have good technology and they are showing the way. The most important
way forward for India would be to get ready for more imports. The Adani group
is investing $1.2 billion in the Mundra Port and Special Economic Zone over
next five years.
This exposure to volatility of spot
pricing is the biggest problem for Indian power producers. Getting mines abroad
is the only option in that case. But they must look at countries other than
Indonesia, like South Africa, Columbia, Mozambique. Diversifying the choice
always helps. South Africa also has problems like railways is not developed
enough. But private players can come together to play better role. Like Adani
and GVK's through the Hancock deal has come together in Galilee Basin in
Australia. So they can come together to improve the infrastructure there for
Australian miners say they aren't experiencing delays to shipments, but this could change if the current slump in steel prices continue amid lingering global growth concerns.
If conditions don't improve, Chinese steel makers could slow imports as inventory is already high at ports and steel mills, said Zhang Changfu, vice chairman of China Iron and Steel Association (CISA)
“I haven't heard of any delay in shipments. But I think we could delay purchases due to the uncertainty in the market and high inventory,” Zhang said, noting that current inventory in the country was enough to support production for about 35 days.
“Some steel mills said they will have to ask to delay shipments if steel prices remain sluggish while iron ore prices remain high in the coming months. They probably won't do that” eventually, the official said.