Colombia coal to fulfill captive requirement: Monnet Ispat

Monnet Ispat is close to acquiring a coking coal mine in Colombia and CMD, Sandeep Jajodia expects to use the coal for captive requirement as well as for trading. He further elaborated that domestic steel prices have been rangebound in the recent past and hopes the worst is over.

Jajodia added, the Utkal B2 coal block has made good progress and extraction from the mine can be expected soon.

Also read: Why are private power cos upset with new coal supply pact

Here is the edited transcript of the interview on CNBC-TV18.

Q: Update us on the acquisitions you are making, we understand you are close to a coal mine acquisition in Colombia. Tell us about even the previous mine acquisitions that you have been attempting?

A: We being a mineral and metal company we keep looking out for mineral assets across the world. The last acquisition we had made was in Indonesia, it was a 25,000 hectare mine and it is a very nice coal mine which we got very cheap. We are right now developing the mine and we hope to start commercial production by March 2013. That is one mine which we are looking forward to.
 
The other one we are close to signing up is a coking coal mine in Colombia. Colombia has a very high grade coking coal and this is to feed our new integrated steel mill which we are setting up now. It will play for captive requirements as well as for trading coal. We have been discussing with them for a while and we hope to close that deal in about a month’s time.

But, it is difficult to give more details on that right now because you never know unless you actually sign up, there could be a slip or something. We would like to talk about it much later.

Q: There are brokerage reports that dealer feedback currently indicates steel demand is pretty much subdued in the domestic markets and there is a lot of high inventory pileup and buildup as well, hence you might be cutting prices going forward. Give us a sense in terms of what exactly the domestic market is looking like and whether these dynamics are actually true.

A: It is actually true. In the last six months, steel demand has slowed down and steel dispatches have slowed down. Therefore, it has an effect on prices. The prices have come down almost by 18 percent since April or May. It is actually quite serious because there was a forecasted GDP growth and based on that growth plan, most steel makers set up capacities and they are in the process of setting up capacities.

There is a fear that going forward, there could actually be a steel glut in the country. If the government doesn't act fast and if it doesn't put its act together to start making money or work towards building infrastructure, with all this negative atmosphere in the country, the spending has come down immensely. Unless we start building roads, highways, ports very quickly, there is going to be an overhang of steel. It is a serious matter because large amounts of money have been put in this.

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Q: Are you getting a sense that we are heading for a steel glut? Do you expect supply to be over demand sometimes sooner, like 2013-2014?

A: I would say 2013 will be a very challenging year because there are a lot more capacities coming in. For example, we will have our own mill, 1.5 million tonnes would get added by March and it would be a brand new mill coming out with products catering to the infrastructure sector.

If infrastructure is not built in this nation, it is going to be a big problem. It is not only us, there are many companies which are actually in the midst of setting up new capacities and a lot of them will kick in 2013. It is a worry. Of course this worry will be for the short-term. In the medium or long-term, India is very sound as a steel market and India needs to grow and will grow.

The India story is fundamentally sound. It is just that this negative atmosphere needs to get cleared, the business confidence has to come back and the government has to start spending money. All the money allocated for infrastructure development needs to be put to work. That's the most important and that is a bit of a worry.

Q: What about your company in particular, how is Monnet Ispat doing in terms of pricing and inventory buildup, would there be some amount of price cuts that you would have to undertake in order to get rid of high inventory and what would your capacity utilisation be at these levels and going forward?

A: Currently, we are not dabbling with too much of a high inventory but, there is sluggishness in the market, we are finding it difficult to sell and prices have come down. But, I believe that the prices have reached a level and it can't go down further. It has almost bottomed out.

In the last two weeks there is a ray of hope. Internationally, steel prices have gone up by USD 30-40, in US and in China. There is a ray of hope in the steel markets. I hope that gets reflected into domestic prices as well. Domestic prices haven’t seen any change in the last couple of weeks and they have been low. Monnet Ispat has been able to maintain a decent margin inspite of this because of our integrated operations. Our cost controls have been good and our margins have been more or less protected because of our integrated process. But, the going is tough, it needs to get better.

Q: On the coal mines that were allotted to you and the fact that you all had to meet the inter-ministerial group, many of them are not yet at a stage where you can extract. What is the last you have heard from the government on the matter and are you still continuing work on those mines, Utkal B2 and the other four mines that came your way? Are any of them at extraction stage?

A: Utkal B2 is almost at extraction stage. We have received almost all our major clearances. The issue here is that this needs to get clarified a little bit. The inter-ministerial group is looking at the development and the delay aspect of it. But, who is helping in the process is the point.

The point is if a state government is not clearing your land acquisition or if the ministry of environment forest is not giving you environment clearance for four years or something else is pending with any government department for many years, who is to facilitate that? How much can the private sector do?

They can send reminders, they can go and meet the concerned officials but, at the end of the day the system needs to get ironed out and it is a very tedious process. Serious companies like ours do our best, we put large amounts of money in putting up these mines together. We have already deposited large amounts of money with the state government etc for the land acquisition process and other clearances but, the approvals just don’t come. What is the company supposed to do now?
 
Having said that, we are almost there in Utkal B2. We are still awaiting some reply from the department of coal to the Orissa government after which we expect to sign our mining lease and start excavation. We hope in the next few months we would be actually touching coal from mining.

The other four blocks are in various other stages of clearances and we are at it. We have got large teams following up this on a day to day basis, trying to go through these large swarms of clearances which one has to do go through before you can actually start mining.