The Hindu Business Line : `Cut in duty will not bring down coal prices'

THE reduction in customs duty on imported coal from 25 per cent to 15 per cent will not bring down the landed price of coal as international coal prices have gone up steeply in the last few months, according to industry sources.

Even after the duty cut, imported coal prices will be $10 to $12 a tonne higher than what they were a month or two ago. A lot of companies, including most cement manufacturers, are negotiating for buying coal from abroad, according to the sources.

Coal prices, according to the sources, have shot up from $30 a tonne two months ago to $45 to $47 now. Earlier, with a 25 per cent customs duty and a 4 per cent special additional duty, the price of coal worked out to $39 a tonne. Now, assuming a price of $45 a tonne, the price of coal after customs duty works out to $51.75 a tonne. According to sources, freight rates from Australia and South Africa, two countries from which Indian companies import most of their coal requirements, have almost doubled in the last two months.

"This duty cut will not bring any significant relief to companies using imported coal since coal prices have gone up steeply," said Mr A.V. Dharmakrishnan, Senior Vice President - Finance, Madras Cements Ltd, when asked about the impact on industry.

On an average, a cement company consumes about 15 per cent coal for producing a tonne of cement. This means that the cost of producing cement increases by Rs 120 a tonne, an increase that the industry is not in a position to pass on to the consumer because of market conditions, according to him.

The cement industry, for instance, consumes about 15 million tonne of coal annually, of which more than 50 per cent is imported.

According to industry sources, bringing down the import duty to 5 per cent would have brought real relief to users of imported coal.

The sources said that the high coal prices and increased freight rates had caught most importers of coal off guard. They expected the increase in coal prices in the world market to continue during the year. In the Asian market alone, coal price was expected to increase by at least 30 per cent from the current levels. This projection was based on trends in coal prices, which had started going up in August last.

The sources said that a number of Indian companies including BSES Ltd, Grasim, GNFC, Hindustan Newsprint, MSEB, National Fertilizer Ltd, and Tamil Nadu Newsprint and Papers Ltd were in the market with tenders to import coal. The prices being quoted for some of these companies were 40 per cent to 60 per cent more than what was quoted in the previous tender floated by them, the sources said.