Overview on Imported Coking Coal Security For Sustainable Growth Of Indian Steel Sector

S & T Mining – August 27,2013 - New Delhi

Overview on Imported Coking Coal Security For

Sustainable Growth Of Indian Steel Sector

Harsh SachdevManaging Director, S&T Mining (A SAIL-TATA Steel JV Co.)

Coal Market in India-2013, New Delhi27th Aug, 2013


Index1. Steel – The Global Scenario & Emerging Trends

2. Raw Material & Coking coal Availability .

3. Steel – The Indian current & emerging Scenario .

4. Indian Raw Materials & Coking Coal Scenario

5. Coking Coal – Domestic Issues – Emerging Legislation

6. Imperatives & issues


The Global Economic Status

• Global Economy:– A marked downturn over the past two years (Global GDP to

remain sluggish 2.8% in 2013 compared to 3.9% and 3.2% in 2011 & 2012 respectively)

– Most regions likely to see a moderate pick-up, but growth to be below potential Country ---Real GDP(2013)• US --–-----------1.5%• Canada --------1.7%• UK---------------1.0%• Germany ------0.3%• China------------7.3%• India ------------5.5%• Brazil ------------2.5%

– Employment gains to remain weak at best.

• Financial uncertainty & Crises – (Reduced liquidity in the market- higher cost of borrowing)

Difficult global business scenario prevailing

Newport Mining Outlook Report 2013-14

Source :Scotia Bank


Global Steel Trends

• Global Steel Production in 2012 at 1.5 Bn. Mt was a growth of 0.7% over the PY. This has been slowest rate of growth since the economic downturn of 2008. EU was a decrease of 4.7 %, Germany a decrease of 3.7 %, North Amercia an increase of 2.5 %.

• In the top 10 Steel producing nations , China, U.S., India , Russia , South Korea & Turkey grew in 2012.

• Modest steel demand pickup expected in 2013.

• China was 46.3 % of the world Steel Production in 2012 & is expected to continue to dominate Global Steel making till 2020.


Steel:Global Scenario & Emerging Trends

• Expected Steel Demand Growth in 2014– China: 2.5%– India: 7.0%– Japan: -0.6%– US: 2.9%– Central & South America: 43%– EU 27: 3.3%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120

200

400

600

800

1000

1200

1400

1600

151 182 222 280356

423490 500

567627 683 709

27 2932

3346

4953 55 56

66.872 77

6781

850904

9701069

11451251

1351 13291219

14141490 1510

Others India US Russia Japan China Total

GLOBAL STEEL PRODUCTION POST 2000(Mill. T.)

Source: World steel Association

Future demand Growth Driver: Further economical development rather than recovery in developed world.China to remain dominant steel producer & consumerIndian steel demand to grow faster

2010 2015 2020 2025 20300

500

1000

1500

2000

2500

589 720 817 835 799

254364

473 584 706

74

87

131178

236

141

144

142142

141

141

144

142

142141

153

172

186

187187

1306

1611

18812065

2214

Apparent demand for finished steel products - 2030 (Mill. T)

Europe North America Developed Asia India ROW China TOTAL

Source: McKinsey & Co.


• Crude Steel production (2.1# Bill. T.) is expected to marginally exceed the global demand (2.09* Bill. T.) in 2020 .

• China to witness addition of more capacities along with consolidation of marginal players.

• India too to add more capacities in current decade – Addition of more than 100 Mill. T. capacity by

2020.

Steel:Global Scenario & Emerging Trends

# Source: Deutsche Research,


Impact On Raw Materials• Over 70 % of Steel made is through the BF

route & is hence impacted by the costs & availability of raw materials, specially coking coal.

• Major volumes of Iron Ore & coking Coal are required.– 1.6 tonne of Iron –ore and 0.9 tonne of coking coal

for 1 tonne of Crude Steel

• RM cost as a proportion of total cost of steel companies is a very significant & is a key driver of total steel cost .– Iron Ore comprises: 30% of Cost– Coking Coal: 26% of Cost

Iron ore31%

Coking Coal26%

Scrap+Ferroal-

loys+Fluxes

17%

Others27%

Cost Break Up- Crude Steel

Source; Steelonthenet


Global Iron Ore

• About 800 Bill. T. of Iron ore reserve with 230 Bill. T. of Iron Content have been proved

• World iron ore export dominated by –Brazil & Australia

• Key iron ore consumers: China, Japan, US, India and Russia

Total Reserves of Iron Ore: 800 Bill. T.


Global Coking Coal Production:

1990 1995 2000 2005 2010 2015 20200

200

400

600

800

1000

1200

1400

555

535

456 62

4 815 97

1

106012 21

53

91

139

170195

567 556509

715

954

1141

1255

PCICoking CoalTotal

Source: McKinsey & Co.

2010-2020Slow down of global demand growth, still driven mainly by

China, India and South America

Globally Coking Coal Reserve: 246 Bill.T.Coking Coal demand to grow at ~3% per annum during current decade

Coking Coal Production to shadow Steel Growth Globally


Global Coking Coal Import & Export:Present & Future

2013 :Australian Met coal export expected to grow by 11% US to decrease by 5% y-o-y to 54 Mill. T.Canada to increase 3% y-o-y to 31 Mill. T.Mozambique 4-4.5 Mill.T. from Maotize mine, ValeMongolia not likely to grow in 2013 Source: KPMG Qtrly, March 2013

China’s import to increase by 18% in 2013 y-o-y to 58 Mill. T. – due to restocking of steel

India import to increase to 36 Mn in 2013

Imports by EU to remain flat at around 46 Mill. T.

Global Coking Coal export (2008-2015F) Global Coking Coal import (2010-2025F)

Australia to remain a dominant exporter though there will be emergence of new sources like Mozambique …China to overtake Japan as leading coking coal importer.


Steel Indian Scenario - Current

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120

102030405060708090

27.3 28.8 31.8 32.6

45.8 49.5 53.557.8

63.568.3

73.5 77.6

Indian Production - Mn tonnes Crude Steel

Production Mn tonnes Crude Steel

India’s Steel Productionhas risen steadily over theLast decade. At 77 Mn. TIndia is the 4th largest SteelProducer Globally. In 2012 it was a nett importer of Steel , mainly special grades.

India China USA EU (27) Russia Japan S Korea Aust. & N. Z.

World Average

0

200

400

600

800

1000

1200

57

477

306 279 293

506

1,114

257

217

Apparent Steel Use Kgs Per Capita - 2012

The per capita consumption of Steel in India remains low . A high potential for growth.


With 77 Mill. T. of Crude Steel production in 2012, India is behind China , Japan & the USA .

By 2016, India is expected to become world’s 2nd largest crude steel producer

Fast urbanisation to drive India’s steel Industry growth

2012 2015 20200

20

40

60

80

100

120

140

160

180

200

77

107

180

Domestic Steel Production Forecast (Mill. T.)

C.A.G.R. 11 %

Yr 2020: India to witness emergence of 5-6 players controlling 65~70% of total prodn

BF-BOF (Mill. T.)

69

DRI & Others

38

107

BF-BOF (Mill. T.)

120

DRI & Others

60

180

Steel Indian Scenario - Emerging


2020: India to emerge as net exporter……

Steel Export moving to China , India & South Amercia


Iron Ore – The Domestic Scenario • With 18 Billion Tonnes (approx) of Haemetite and 11 Billion

Tonnes (approx) of Magnetite resource, India is self sufficient to fulfill its Steel Industry requirement.

• With a ban on illegal mining in Goa & Karnataka – Iron Ore output fell to 167 Mn. Tonnes in FY 13. Imports started.

• The government of India, is taking various measures, including approaching the supreme court to correct the situation.

• In 2020, India to consume ~300 Mill. T. of Iron Ore for producing 180 Mill. T. of crude steel.


Coking coal sources for India: 2012

Total 43 Mill. T

Coking coal Import

32 Mill. T

Imported PCI

4 Mill. T.

Indigenous coking coal7* Mill. T.

Increased dependency on overseas coking coal mining countriesAustralia to remain a dominant coking coal exporter to India

*Indigenous coal at 17% avg ash, while imported met coal ash ~10%

Country Qty (approx) (Mill. T.)

%age

Australia 27 85%

Indonesia 3 10%

New Zealand

1 3.5%

Others 1 1.5%

TOTAL 32 100%

Coking Coal Sources (2012


2010 2015 202025.0

55.0

85.0

115.0

145.0

37

69

120

36

63

108

Coking Coal Requirement (Mill. T.)

Met Coal Consumption Forecast….

2010 2015 20200

20

40

60

80

100

120

8 13 15

27

45

83

1

5

10

36

63

108

LV PCI Import (Mill. T.)

Imported Coking Coal (Mill. T.)

Domestic Supply (Mill. T.)

Coking Coal Re-quirement (Mill. T.)

Sources of Met Coal Mill. T.

2020: India is expected to import whopping 83 mill. T. of coking coal (apart from 10 mill. T. of PCI) equalling forex outgo of atleast USD14* Bill. Per year.

Total 93 Mill. T. of metallurgical coal import implies that 86 % of India’s BOF steel production to depend on imports – High risk exposure

Hot Metal/Pig Iron Production -BOF

* At USD 170/t of coking coal price; conversion 1USD = Rs 54


A need to separate “Coking Coal” from Coal . At present Coking Coal also being used to meet India’s Power requirements . An opportunity for washing low grade of Coking Coals , to enhance valuations.

An increase in the infrastructure to evacuate coal from Pit heads to the point of consumption. Adequate Railway sidings & rakes.

Implementation of the Jharia Action Plan in the prime coking belt of India. Jharia has 5.3 Bn. tonnes of prime coking coal & 6.1 Bn. tonnes of medium coking coal , which has been on fire .

A concept of a “Single window Clearance” wherein all clearances which are sought are applied for, in one place, within the various Government departments.

Mining is a “Site Specific Activity “ and hence the same cannot be shifted to an alternate location. The Government needs to play a role a major facilitator in acquisition of land for critical coal projects .

Upgrading of efficiency levels by use Mass Production Technologies – Larger sizes of Heavy Earth moving Equipments in Opencast Mines & mechanization in underground mines .- Average output of underground mines is well behind global output at approx. 0.2 MTPA.

Coking Coal - Domestic Issues

Some of these issues are under active consideration .


Time taken in getting statutory clearances impact coking coal projects execution timeline.

A process of defined time frames for clearances , / default clearances in case of delay’s needs to be examined .

Emerging legislation making coal mining more complex & expensive , will increase lead time to starting coal production. LARR

Consent of 80% Project Affected People (this might delay projects) 4 times land price in rural and 2 times land price in urban area for

compensation along with other compensation MMDR bill

26% of profit to be given to District Mineral foundation plus other taxes leads to overall tax of 61% for Indian coal Mining (against 30-40% in other countries).

Auction by competitive Bidding of Coal Mines Rules 2012 - Implemented for PSUs – Implementation for Private companies awaited .

Domestic Legislative Environment

Legislation to ensure inclusive growth & welfare of local communities.

Degree of complexity of Domestic Mining to increase .


Country Rating Investment options in Mining Countries


Country Comparison Mining InvestmentCountries Australia Indonesia Mozambique S. AfricaReserves

(Thermal+Coking)

77 Bill.T 5.5 Bill. T. 16 Bill. T. 30 Bill. T.

Mining Costs High Moderate Moderate Moderate

Infra HighHigh.

Upgradation Required

Low.Needs huge Investments

Moderate.Inadequate Rail Infra

Tax Regime

Transparent introduction of MRRT &

Carbon Tax – Extra Burden

Frequent Changes in mine laws.

Favours domestic players

Favourable to foreign

investors with no such issues

of local ownership

No specific mine policy.Encourages

local ownership of

mines

Proximity to Indian Ports

Takes ~18 days to

India’s west coast; 14

days to east coast

Takes ~12 days to

west coast; 9 days to east coast

Takes ~10 days to west

coast; 12 days to east coast

Takes ~12 days to west

coast; 14 days to east

coast

Source: Infraline

Country wise mining rights processing timeCountry Time to

process rights (Months)

Colombia 1South Australia

<2

Brazil 2Chile 7South Africa

>12

India 48Source: Mckinsey & Co

26S & T Mining – August 27,2013 - New Delhi

Country rating for Mining (Behr Dolbear – 2012)Parameter Rank 1 Rank 2 Rank 3 Rank 4 Rank 5Economic System

AustraliaCanadaChile

US BrazilMexico

ColombiaPeruMongolia

China India Indonesia

Political system

CanadaChile

AustraliaBrazilUS

MexicoColombia

PeruIndiaIndonesia

Mongolia

Social Issues Australia Chile Colombia BrazilMongolia

CanadaIndonesia

Permitting Delays

Australia Mexico ChileColombia

BrazilMongoliaChinaSouth Africa

Canada

Corruption AustraliaCanada

US Chile BrazilComobia

27S & T Mining – August 27,2013 - New Delhi

Country rating for Mining (Behr Dolbear – 2012)Parameter Rank 1 Rank 2 Rank 3 Rank 4 Rank 5Currency Stability

AustraliaCanadaBrazil

Chile USChina

South AfricaIndia

Mongolia

Tax Regime CanadaMexico

Brazil AustraliaRussiaChina

ChileUSColombiaMongoliaIndia

Overall Australia Canada Chile Brazil Mexico

Australia and Canada are two most favourable countries for mining; Australia more favourable: Canadian coal has cost disadvantage compared to Australia in terms of freight


Investment by Indian Companies

Since import is an imperative a number of Indian companies have already coal assets abroad……


Suggestions towards securing coking coal import• Inter-Governmental level of agreement for developing and operating

overseas coking coal mines.

• Using sovereign fund for developing infrastructures in emerging coking coal sources like Mozambique.

• Mining companies should form consortium with Infrastructure & Logistics

companies to invest in infrastructure in new geographies.

• Priority clearances at Indian ports .

• Construct a dedicated rail corridor in the country for faster movement of coal from ports to end user plants.


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Overview on Imported Coking Coal Security For Sustainable Growth Of Indian Steel Sector

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