The Steel Authority of India (SAIL) – the largest steel-making PSU in the country - is looking at new coal-sourcing avenues for its plants. The company is already sourcing from its joint venture in Mozambique at a lower price; and has started using Russian coal, which it gets at a discount.
According to Anil Tulsiani, Director Finance, SAIL, coal from the JV – International Coal Ventures Ltd – is “not as good as Australian (coal) or coal from the USA.
“SAIL has got a company, ICL, which has got its own mines in Mozambique. So though the coal quality is not as good as Australian or US coal, we are getting it at a comparatively lower price. ,” Tulsiani said during post-earnings investor call.
“So I think the more we find avenues with other suppliers of coal, this will put pressures on the regular suppliers who are playing a part in the Platts Index. It will put pressure on them to also bring down the prices to some extent. At this moment the price is hovering at $380 per tonne which is really very difficult to absorb,” he added.
According to Tulsiani, the steel industry already has experience with coal prices shooting up to $650 per tonne levels. But, he was hopeful of this “sudden hike” which began mid-January onwards, of “showing a downward trend” soon.
Coking coal prices
With China opening up again, post Covid restrictions being withdrawn, it has started to procure coal from Australia after a gap of nearly three years. So, naturally there are concerns on coking coal prices moving up on the higher side.
For the steel industry, the price of fuel dictates the cost of production for major producers. India, the world’s second largest steel producer is also the largest importer of coking coal. Import bills for coking coal across the industry are expected to be around $25 billion.
“The increase in coking coal prices again is threatening to increase our cost of production in the current quarter. However, the simultaneous improvement in the steel prices is expected to cover up the same,” he added during the earnings call.
According to Tulsiani, coal costs for January and February, are “more or less in line with December costs” and perhaps up in the range of ₹1,000 – 1,500 per tonne. But, the company predicts that in March, “there can be an increase of roundabout ₹4,000 (per tonne) in the cost of coal.”
In October– December, revenue from operations stood at ₹25,042 crore; while profit after tax was ₹464 crore.
SAIL’s Q3FY23 blended realisation stood at ₹60,327/tonne.
The raw material cost fell by 18 per cent QoQ to ₹32,583/tonne led by lower coking coal prices. Overall, this resulted in a 183 per cent QoQ rise in EBITDA to ₹5,003/tonne.
“We’ve got some improvements in net sales realisations in January, but now, there are again some tremors coming up. like There has been some stabilisation and maybe some cooling off of the net sales realisations,” Tulsiani said, adding that the time has come where realisations will stabilise and the company “can sustain” its steel production.
“With higher volumes coming up, the benefits of higher volumes and lower fixed costs will surely help us,” he said.