JSW Steel plans to restart coking coal mining in US

Suresh P Iyengar Mumbai | Updated on January 15, 2018

Strong demand from China, predictions of severe cyclones in Australia drive up prices

JSW Steel plans to restart coking coal mining in the US following sharp rise in prices during the last few months.

Spot coking coal prices have more than trebled from $90 a tonne to $310 a tonne since July, on the back of strong demand from China and predictions of worst-ever cyclone in Australia.

JSW Steel owns nine coking coal mines with cumulative resources of 123 million tonnes at West Virginia in the US.

These mines, which were acquired from a string of US-based companies in 2010, could not be developed due to fall in coal prices following global financial crisis and the subsequent economic slowdown. Seshagiri Rao, Joint Managing Director, JSW Steel, said though the increase in coking coal and iron ore prices are eating into the company’s margins it has thrown a great opportunity to restart iron ore and coking coal mines in Chile and the US.

“We will restart coking coal mines in the US by March next year and then take up iron ore mining in Chile. We will not bring the coal to India but it will act as a financial hedge as we are largely dependent on imported coal to operate our plants in India,” he added.

The company is closely evaluating the sudden spike in iron ore and coking coal prices to understand whether they are sustainable at the higher levels. Fundamentally, there is no reason for iron ore and coking coal prices to go up. Given that there is incremental iron ore supply of 56 million tonnes, the game being played in the international markets is very difficult to understand, he said. When coking coal prices were above $310 a tonne in 2008 and 2011, the steel prices were about $900 a tonne.

However, steel prices today are below $500 a tonne and coking coal prices are at $310 and iron ore prices are at $90 a tonne, said Rao.

China strategy

With every country imposing anti-dumping duty on steel imports from China, he said it has evolved a strategy to price out other countries by making raw material costlier.

International coking coal prices have gone up to $310 a tonne, while China’s domestic coking coal price is at $189 a tonne.

This is because 90 per cent of coking coal consumed by China is produced domestically.

International coking coal prices have gone up sharply because of Chinese imports but few are aware that the 10-million-tonne of incremental coking coal shipped into that country at a much cheaper price from land-locked Mongolia and not from Australia, said Rao.

This apart, coking coal prices shot up after the meteorological department predicted 11 cyclones to hit Australia and cause immense damage. After this prediction and subsequent price rise, he said export of coking coal from Australia has gone up by three million tonne.

In the last few weeks, Rao said the coking coal prices have remained stable at $310 a tonne after the Chinese government enhanced margin money for trading in coking coal but suddenly iron ore prices have shot up from $62 a tonne has gone up to $76.

Published on November 21, 2016

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