India's SAIL Aims to Reduce Coking Coal Imports 20% by 2013

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Researched by Industrial Info Resources (Sugar Land, Texas)--The Steel Authority of India Limited (SAIL) (BSE:500113) (New Delhi) has created an investment program to reduce dependency on imported coking coal 20% by 2013. As the beginning of this program, SAIL will invest $362 million in developing two virgin coking-coal blocks in the eastern state of Jharkhand.

With total installed capacity being raised to 23 million tons by 2013 from current levels of 14 million tons, ensuring the security of raw materials is crucial, according to officials in SAIL's Raw Materials Division. Coking coal constitutes 30% of SAIL production costs, and owning the source of the raw material will insulate the company against fluctuating prices, the officials say.

SAIL consumes an estimated 14 million tons of coking coal per year, of which only 4 million tons are sourced from the company's captive mines and from government-controlled Coal India Limited, while the balance is imported. Following the development of the two virgin coking-coal blocks, the company will increase its domestic source of coking coal by 4.3 million tons. But even with increased availability of coking coal from domestic sources, SAIL will continue to be a net importer, as its requirement will increase to 21 million tons by 2013 when expansion investments are complete.

The two new mines that to be developed are Tasra and Sitanalla, which are part of the Jharia coal fields in Jharkhand state. Tasra, an open-cast mine, is expected to yield 4 million tons per year, while the underground mines at Sitanalla will produce 300,000 tons.

Officials said that investments in domestic coking coal blocks are the result of a shift in raw material security strategy to focus on domestic sources, since earlier attempts to pick up stakes in coal assets overseas had not met with success. In 2008, SAIL had formed a joint venture company, International Coal Ventures Limited (ICVL), with NTPC Limited (BSE:532555) (New Delhi), Rashtriya Ispat Nigam Limited (Vishakhapatnam), Coal India Limited (Kolkata) and NMDC Limited (BSE:526371) (Hyderabad), but failed to successfully negotiate for an equity stake in overseas coal assets.

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