India's Gujarat NRE Coke Announces Expansion Plans in Australia and India

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Researched by Industrial Info Resources (Sugar Land, Texas)--India's largest independent producer of metallurgical coke, Gujarat NRE Coke Limited (BSE:512579) (GNCL) (Kolkata, West Bengal), has announced plans to undertake both greenfield and brownfield expansion projects in Australia and India. The company plans to ramp up the coking coal production capacity of its two Australian mines--NRE No. 1 Colliery and NRE Wongawilli Colliery--to 2.4 million tons per year before the end of 2010, and to 6 million tons per year by 2013-14. Mr. Arun Kumar Jagatramka, the chairman and managing director of GNCL, said that GNCL's mines in Australia were performing well and production was progressing according to schedule. He said that GNCL would invest another $392 million to $435 million in Australian assets in the next few years, in addition to the $348 million already invested.

Jagatramka said that the demand for met coke has increased significantly in the past 12 months, and a combination of strong demand and rising prices has given the company positive margins. GNCL has already cashed in on this strong demand and executed two export contracts in the second quarter of 2010. For the quarter ended June 30, 2010, the company has recorded year-over-year income growth of 45%.

Jagatramka added, "The company has seen a strong price-rise until June in this quarter. In fact, there is a global shortage of met coke, and it may create a scarcity in this product as early as in 2011 and beyond."

GNCL has no plans at present to explore coal blocks in any other country and intends to utilize cash reserves to fund the Australian projects. However, GNCL does have plans to enhance the production capacities of its Indian facilities. The company plans to invest about $427 million to increase its coke production capacity in India from the existing 1.25 million tons per year to 4 million tons per year over the next four years. The company has finalized plans to invest about $171 million to set up a 1 million-ton-per-year greenfield plant in the Nellore district of Andhra Pradesh. The facility will include a 60-megawatt captive power plant. Work on the project is expected to begin late this year, and operations are expected to begin in 24 to 30 months. The rest of the planned investment will be utilized to increase the capacity of GNCL's existing plants on the west coast of India.

During an interview, Jagatramka said that India's demand for premium quality, hard coking coal is mostly met by imports as there is an acute shortage of the commodity in the country. Last year, because of the economic downturn and decline in global demand, GNCL sold its entire production in the domestic market, which has been the primary driver of the company's growth. Prior to the recession, about 40% of the company's sales were in the export market. He expects the domestic demand for met coke to double by 2012 and perhaps quadruple by 2020, given India's target of doubling steel production by 2012 and expanding capacity to more than 200 million tons per year by 2020. With the recovery of the economy, the company has been receiving large export orders this year.

Met coke, or coking coal, is a blend of selected bituminous coals that are used to produce coke. The coal is subjected to destructive distillation in anaerobic high-temperature ovens, which eliminates a large part of the inherent volatile matter. Coke is the final product of the distillation process and consists almost completely of carbon.

Coke is used in blast furnaces, where it acts as a heat source and a chemical-reducing agent that produces pig iron from iron ore, or a hot metal from its ore form. The properties of coke are most important in its role as a structural support material to the deep bed of coke, limestone or iron ore that makes up a major part of the furnace volume. It is essential that coke does not break up into smaller particles while descending through the oxidizing hot gases.

High-quality coal is required to produce high-grade coke. Low-ash metallurgical coke (LAMC) is utilized in the chemical and metallurgical industries as the primary fuel when uniform heating at high temperatures is a critical requirement. Industries that use LAMC include integrated steel plants and industries or foundries that produce chemicals, engineering goods, ferro alloys, pig iron, soda ash, zinc, and other materials.

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