6 AUG, 2012, M V RAMSURYA, ET BUREAU
MUMBAI: Mohit Aggarwal and his ilk could well be regarded as the saviour of small- and medium-size steel and cement companies in India that are facing challenges to keep their furnaces burning due to acute coal shortage.
Aggarwal, the managing director of Aastha Minimet, a coal trading-cum-steel making firm, has just tied up the first trade of about 3,000 tonnes of imported non-coking coal through the National Spot Exchange and is now busy attending to enquiries from a host of small- and medium-sized steel and cement companies clamouring to buy the mineral through the same route.
Aggarwal says the trend will only rise as shortage of coal locally and an arbitrary local price regime had so far kept such end-user sout of the purview of large trading firms. Smaller coal requirements and an inability to lock into long-term purchase contract shad affected these steel and cement mills' purchases, forcing them to cut production as per the availability of minerals.
In some cases, these mills had to shut down. The trend will also catapult trading firms such as Aggarwal's Aastha, Bhatia International, the Maran Group and Modi Coal Trading into direct competition with larger companies like Adani Enterprises and Coal India, as global availability of the mineral has increased due to higher shale gas production in the US.
Non-coking coal, typically imported from South Africa and Indonesia, is used by power, cement, sponge iron and paper companies as a vital raw material to fire their furnaces.
These units, concentrated in small clusters in various regions of the country like Karnataka, Andhra Pradesh, Gujarat and Maharashtra, have been sourcing from multiple players, exposing their profitability to price and volume volatilities. The sponge iron mills in Karnataka are a case in point.
A Supreme Court ban on iron-ore mining in the state led to the closure of almost 80% of the 65 sponge iron mills as they did not have the resources to buy ore from other states or to participate in e-auctions. This also affected their ability to buy coal and they had to shut down plants.
Since these mills typically buy small lots of iron ore and coal - about 1,00,000 tonnes, compared with large contract sizes of multi-million tonnes - they are not able to participate in long-term trading contracts.
"There is robust demand for smaller quantities of coal through the spot route. Selling this through an exchange brings transparency in pricing and also assures users of the quality," Aggarwal told ET. During 2011-12 , non-coking coal imports totaled 99 million tonnes, 44% higher than that imported last year.
This is expected to increase further during 2012-13 as the gap between demand and domestic production is estimated to be 148 million tonnes, which has already increased the country's import bill. "This (the gap) is leading to a relentless high growth in diesel consumption by power companies," said Tarun Lakhotia of Kotak Institutional Research.
Indian companies have traditionally relied on Coal India for coal. But production bottlenecks at the world's largest coal miner and poor transportation systems have forced users to import. "Also, a large portion of Coal India's production is diverted for sale through e-auctions ," said the head of a cement company, who asked not to be named.
The first spot contracts on the National Spot Exchange were conducted on an electronic platform, with delivery ex-Mangalore port, which will soon include Kandla in Gujarat for supply to companies based in the north. Typically, such spot contracts will not involve intermediaries.
The first coal contract was closed at Rs 7,300 per tonne. Increased availability of imported coal is also another reason why spot trading will rise. According to Hemant Sahai, managing partner at Delhi-based HSA Advocates, who has been advising various companies in the industry and is closely associated with structuring such agreements, increased availability of shale-gas in the US has led to surplus coal.
Aastha Minimet imports 2 million tonnes of coal annually; Adani Enterprises imports about 40 million tonnes of thermal coal every year and supplies it to large power companies like RPower, TataPower, Jindal Power and others.
Also, large traders like the Adanis control mines in Australia or have equity stakes in mines there. They export coal from such mines for use in coast-based power projects in India. Adani Enterprises did not comment for this story.
MUMBAI: Mohit Aggarwal and his ilk could well be regarded as the saviour of small- and medium-size steel and cement companies in India that are facing challenges to keep their furnaces burning due to acute coal shortage.
Aggarwal, the managing director of Aastha Minimet, a coal trading-cum-steel making firm, has just tied up the first trade of about 3,000 tonnes of imported non-coking coal through the National Spot Exchange and is now busy attending to enquiries from a host of small- and medium-sized steel and cement companies clamouring to buy the mineral through the same route.
Aggarwal says the trend will only rise as shortage of coal locally and an arbitrary local price regime had so far kept such end-user sout of the purview of large trading firms. Smaller coal requirements and an inability to lock into long-term purchase contract shad affected these steel and cement mills' purchases, forcing them to cut production as per the availability of minerals.
In some cases, these mills had to shut down. The trend will also catapult trading firms such as Aggarwal's Aastha, Bhatia International, the Maran Group and Modi Coal Trading into direct competition with larger companies like Adani Enterprises and Coal India, as global availability of the mineral has increased due to higher shale gas production in the US.
Non-coking coal, typically imported from South Africa and Indonesia, is used by power, cement, sponge iron and paper companies as a vital raw material to fire their furnaces.
These units, concentrated in small clusters in various regions of the country like Karnataka, Andhra Pradesh, Gujarat and Maharashtra, have been sourcing from multiple players, exposing their profitability to price and volume volatilities. The sponge iron mills in Karnataka are a case in point.
A Supreme Court ban on iron-ore mining in the state led to the closure of almost 80% of the 65 sponge iron mills as they did not have the resources to buy ore from other states or to participate in e-auctions. This also affected their ability to buy coal and they had to shut down plants.
Since these mills typically buy small lots of iron ore and coal - about 1,00,000 tonnes, compared with large contract sizes of multi-million tonnes - they are not able to participate in long-term trading contracts.
"There is robust demand for smaller quantities of coal through the spot route. Selling this through an exchange brings transparency in pricing and also assures users of the quality," Aggarwal told ET. During 2011-12 , non-coking coal imports totaled 99 million tonnes, 44% higher than that imported last year.
This is expected to increase further during 2012-13 as the gap between demand and domestic production is estimated to be 148 million tonnes, which has already increased the country's import bill. "This (the gap) is leading to a relentless high growth in diesel consumption by power companies," said Tarun Lakhotia of Kotak Institutional Research.
Indian companies have traditionally relied on Coal India for coal. But production bottlenecks at the world's largest coal miner and poor transportation systems have forced users to import. "Also, a large portion of Coal India's production is diverted for sale through e-auctions ," said the head of a cement company, who asked not to be named.
The first spot contracts on the National Spot Exchange were conducted on an electronic platform, with delivery ex-Mangalore port, which will soon include Kandla in Gujarat for supply to companies based in the north. Typically, such spot contracts will not involve intermediaries.
The first coal contract was closed at Rs 7,300 per tonne. Increased availability of imported coal is also another reason why spot trading will rise. According to Hemant Sahai, managing partner at Delhi-based HSA Advocates, who has been advising various companies in the industry and is closely associated with structuring such agreements, increased availability of shale-gas in the US has led to surplus coal.
Aastha Minimet imports 2 million tonnes of coal annually; Adani Enterprises imports about 40 million tonnes of thermal coal every year and supplies it to large power companies like RPower, TataPower, Jindal Power and others.
Also, large traders like the Adanis control mines in Australia or have equity stakes in mines there. They export coal from such mines for use in coast-based power projects in India. Adani Enterprises did not comment for this story.
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