Coal availability stable, say sponge iron manufacturers

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Coal supply for the sponge iron industry remains stable through a combination of domestic and imported sources, representatives from the sponge iron industry said. State miner Coal India in a recent round auctioned 11 million tonnes of coal, which is expected to ease supply pressures.

A year ago, sponge iron manufacturers struggled to keep capacities running due to a coal shortage in the country. Moneycontrol spoke to sponge iron manufacturers and industry representatives, most of whom reported that coal supply remains at manageable levels so far — either through captive, domestic, or imported routes. Sponge iron is a feedstock used in the steel-making process and coal is a key raw-material in sponge-iron making.

A recent round of e-auctions by Coal India for the supply of coal is expected to further help meet requirements.

“Coal India opened the e-auction route under this category after a gap,’’ said Deependra Kashiva, Executive Director, Sponge Iron Manufacturers Association (SIMA). "Over the last two months, Coal India has auctioned more than 11 million tonnes of coal under the non-regulated sector linkage category for the sponge iron sub-sector. This will help meet a fifth of the industry’s coal requirements," said Kashiva. He added that though the supply for the industry remains stable, one will need to watch out for the coal situation in May.

This is the sixth such tranche from Coal India, with the last offered in FY21-22. Around 19.43 million tonnes of coal has been auctioned so far under the first five tranches to the sponge iron industry, according to coal ministry data.

The cost for sourcing this coal remains high. "The e-auctions have happened at very high premiums, more than 50 percent higher than the notified price, due to the coal scarcity," said BL Agarwal, Managing Director, Godawari Power and Ispat, a sponge iron manufacturer.  According to the coal ministry’s data, under the first five tranches coal was auctioned (for all sub-sectors) at an average premium of about 20 percent over the notified price in the non-power category.

Steel producers in India may see some respite on the global coal prices front. S&P Global Ratings estimates that a sharp fall in seaborne metallurgical coal prices will improve cash flows and ease the leverage of Indian steel producers.

"We expect lower seaborne met coal prices will help Indian steel mills, as they import 70 percent of their total requirement," said Anshuman Bharati, Credit Analyst, S&P Global Ratings, adding, "Our estimates suggest that a $10 correction in met coal prices will boost the EBITDA per tonne by about $8, all else being equal."