Coke prices will spike sharply in few months: Gujarat NRE

In an exclusive interview with CNBC-TV18's Udayan Mukherjee, Arun Kumar Jagatramka, managing director of Gujarat NRE Coke says he expects coking coal prices to move up rapidly due to the panic buying situation."Queensland supplies almost 30% to 35% of the total global coking coal. The supply is suffering very heavily due to the floods and there is a panic buying situation now," he explains.

He futher expects coke prices to move up rapidly as most steel mills will not be getting coking coal and hence try to source coke while its supply is already very tight."There are not many sources of coke left in the world and I would expect coke prices to spike very sharply in the next few months," he adds.

Below is a verbatim transcript of the interview. Also watch the accompanying video.

Q: How would you sum up the Australian situation right now and its impact on prices?

A: Queensland is the main coal loading basin in the world and supplies almost 30% to 35% of the total global coking coal. The supply is suffering very heavily due to the floods. As most of the rail lines are particularly flooded, rail connections to the port are lost and some of the mines are also flooded.

Few mines have declared force majeure while some of the mines were operating even when they were not able to get their coal to the ports, such that the port stock is almost zero. Most of the companies shipping out of Queensland have declared force majeure. The condition is not expected to correct before a month or two because most of the rail lines have been washed out in the floods.

The situation is grim and from that perspective it will have a major impact on the coking coal supply for Q1.

Q: The negotiations in April are of course a while away. What is happening with spot rates in the meanwhile then for your product?

A: Coking coal and spot prices are anything that the buyers are prepared to bid for because there is a panic buying situation now. Most of the usual suppliers or the contract supplies are under force majeure, ships are waiting for coal which is not there.

Some buyers have even bid for USD 250 and higher. However, there is nothing concrete as such, though there is panic. People expect prices to peak the 2008 prices of USD 300 in the current month or next month.

Q: How much is your own production being hit by?

A: We are in New South Wales and our mines are not in the area which is affected by the floods at all. We are shipping very regularly. In December, we shipped around 200,000 tonne, in January we are scheduled to ship around 200,000 tonne of coal from our mines. Most of the January shipment has been sold to third party customers in China while one shipment will be coming to India for our own consumption.

Q: How significant a rise in revenue and profitability do you expect because of the rise in prices, which affects you without any supply disruptions?

A: The prices of coking coal have already moved up by 10% to15% and could go up further as we go through the quarter. Coke prices have also started looking up. I expect coke prices to move up rapidly since most steel mills will not get coking coal and will try to source coke and its supplies are already very tight. There are not many sources of coke left in the world and I, therefore, expect coke prices to spike very sharply in the next few months.

Q: Where exactly is the situation the tightest in terms of industries affected? Is it the steel industry that you alluded to or is it the thermal coal as well that has been affected?

A: Thermal coal is also affected as long as thermal coal comes out of Australia is concerned. From Indian perspective most of the thermal coal comes from Indonesia and South Africa, while coking coal comes from Australia. Queensland supplies both thermal as well as coking, therefore, while coking is fully affected but thermal is affected partially. It will have a follow on effect to some extent.