SAIL seeks to acquire coking coal assets overseas

By: | Published: July 29, 2016 6:25 AM

State-run Steel Authority of India (SAIL) is looking for coking coal asset acquisitions abroad to reduce its dependence on imports, the company noted in a recent presentation to the new steel minister, Chaudhary Birender Singh.

As much as 86% of the requirement was met through imports, mainly from Australia. The remaining 16% was met through indigenous sources. SAIL has just 0.5 mt of captive coking coal capacity.As much as 86% of the requirement was met through imports, mainly from Australia. The remaining 16% was met through indigenous sources. SAIL has just 0.5 mt of captive coking coal capacity.

State-run Steel Authority of India (SAIL) is looking for coking coal asset acquisitions abroad to reduce its dependence on imports, the company noted in a recent presentation to the new steel minister, Chaudhary Birender Singh. Although the fundamentals for overseas purchase are conducive now with the fall in coking coal prices, sources said SAIL’s precarious financial condition could prove to be a stumbling block.

SAIL had consumed 15.6 million tonne (mt) of coking coal to produce 12.4 mt saleable steel last fiscal. As much as 86% of the requirement was met through imports, mainly from Australia. The remaining 16% was met through indigenous sources. SAIL has just 0.5 mt of captive coking coal capacity.

With the ongoing R72,000-crore modernisation and expansion programmes, which are nearing completion, SAIL’s saleable steel production capacity would go up to 20.23 mt. In sync with that, SAIL’s coking coal requirement would go up to 21 mt a year, of which roughly about 95% will have to be met through imports, SAIL said in the presentation, adding, “new linkages/acquisitions are being explored” to plug the gap.

SAIL chairman P K Singh could not be contacted for comments, but sources said funding for a big-ticket asset buy could be a problem for SAIL, particularly after last financial year’s staggering R4,137-crore loss and growing interest outgo, and falling debt-equity ratio of the company over the last four years. Its turnover also fell last financial year to its lowest in four years, to R43,337 crore.

Hit hard by burgeoning imports at predatory prices and anemic domestic demand, SAIL’s financials took a beating and the prospect of the company reporting losses for a consecutive five quarters in the first quarter of the current financial year looms large. The increased borrowings to fund the modernisation and expansion has only rubbed salt to the wound.

Meanwhile, even as coking coal prices have started picking up to around $92 per tonne now, it is way lower compared with its peak of around $ 300 a tonne in 2008. This has resulted in a lot many not-so-premium assets looking for buyers. A sound SAIL could have grabbed the opportunity.

Along with NMDC and RINL, SAIL had bought a coking coal asset in Mozambique through International Coal Ventures in 2011 from Rio Tinto, but the only operating mine, Benga, in which Tata Steel has a 35% stake, has been lying inoperative since January this year.

Sources said SAIL has already appointed a mine developer to develop the Tasra captive coal mine, which can produce 2 mt of washed coal and another 0.2 mt from Sitanala block. It was also allotted the Prabatpur coking coal mine in March this year, which after a ramp-up can produce 0.7 mt washed coal a year.

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