JSW Steel Will Import 40% More Coking Coal Next Year on Capacity Increase

Courtesy news via Bloomberg by Abhishek Shanker - Jan 6, 2011 6:16 AM GMT+0530

JSW Steel Ltd., India’s third-largest producer, plans to increase coking coal imports from Australia and the U.S. by as much as 40 percent next fiscal year as it raises production.

Imports will climb to about 7 million metric tons in the year from April 1, part of which will come from JSW Steel’s U.S. mines, Chief Executive Officer Vinod Nowal said in an interview in Mumbai. Capacity at its Vijayanagar factory in the southern state of Karnataka is slated to increase 47 percent to 10 million tons by March, he said.

India’s steel demand, which rose about 8 percent last fiscal year, is forecast by the government to grow 10 percent this fiscal year, helped by spending on roads, ports and automobiles. JSW Steel, which imports all its coking coal, has built its plant to limit coal usage as prices climb because of supply disruption caused by flooding in Australia, the world’s largest exporter.

“We’ve designed our furnace and raw material feed in a way that our coal requirement will be amongst the lowest in India,” Nowal said by phone yesterday. “Talks to secure coking coal are on and we should be able to contract the required quantity.”

JSW Steel, which is expected to use 5 million tons of coking coal by March 31, increased purchases in December in preparation for the rains in Australia, from where it gets the bulk of its supply, Nowal said. Indian companies paid about $208 a ton for coking coal in the quarter ended Dec. 31, said Niraj Shah, an analyst at Fortune Equity Brokers Ltd. in Mumbai.

Coal Prices

Prices may rise to $270 a metric ton for three-month contracts starting April 1 as the floods in Australia threaten to take as much as 10 million tons of metallurgical coal out of the market, Colin Hamilton, a London-based analyst at Macquarie Group Ltd., said in an e-mailed response to questions. Mills agreed to pay $225 a ton for the quarter beginning Jan. 1, Bank of America Merrill Lynch analysts wrote in a report last month.

JSW Steel shares, which rose 16 percent last year, fell 1.7 percent to 1,147.50 rupees at the close of trading yesterday in Mumbai. The benchmark Sensitive Index of the Bombay Stock Exchange dropped 1 percent.

The company expects to use no more than 700 kilograms (1,543 pounds) of coal to make a ton of steel, about 10 percent less than rivals, making it amongst the most efficient mills in the nation, Nowal said.

Acquisitions

JSW Steel, which earmarked $500 million for acquiring coking coal assets overseas, is seeking mines in Australia and Africa. The company bought coking coal assets in the U.S. in May and plans to start shipments from the mines this quarter, Group Chief Financial Officer Seshagiri Rao said on Sept. 23.

Tata Steel Ltd., India’s biggest producer, buys all the coal for its European operations and about half its Indian requirement from overseas. Steel Authority of India Ltd., the second-largest producer, imports 70 percent of its needs.

Indian steelmakers imported about 27 million tons of coking coal in the year ended March 31, according to Gujarat NRE Coking Coal Ltd., the nation’s largest non-state producer.

JSW Steel, which plans to add about 3.2 million tons of capacity at Vijayanagar, will probably start the new blast furnace at the plant on March 25, Nowal said.

“First half of the calendar year is always the best for Indian steel output and consumption, hence the requirement of coal is also higher,” Shah said.

To contact the reporter on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net