Update on Gujarat NRE Coke

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http://www.business-standard.com/india/news/%5Ccoking-coal-prices-to-remain-firm%5C/390736/

Gujarat NRE Coke, which is the leading player in the Indian met coke industry, has been the key beneficiary of growing demand from the domestic steel industry. As the global steel industry revives, the company is increasingly being able to garner higher realisations. The company is further looking to increase its domestic production as well as significantly ramp up output at its Australian mines. Jitendra Kumar Gupta spoke with the Arun Kumar Jagatramka, the company’s managing director, about the opportunities and his plans. Excerpts:

The government is focusing on clean energy and thus, imposed Rs 50 per tonne cess on coal. What impact will it have on your company?
The Rs 50 per tonne clean energy cess on coal applies to coal produced in India or imported into India. We import the entire requirement of coking coal primarily from our own mines in Australia. It is very marginal and hence, the net effect would be an increase in input cost, which may eventually be passed on to the consumer.

Compared to 2009, how are revenues and net profits expected to grow in 2009-10 and 2010-11? Also, if there is scope for the margins to improve?
2009-10 has been a year of consolidation, with domestic demand slowly picking up. With the situation improving in 2010, in terms of coke price and better realisation, we expect the trend in margin improvement to continue.

Can you give us an idea how has the coal prices moved in the last six months or so? Also, if you could please share your view on the demand, has it improved in recent past?
Coking coal price has been seeing a steady climb upwards for last six months. Coking coal benchmark price for quarter April to June has been set at $200 compared to last year’s benchmark at $128 per tonne. Spot prices, too, continue to increase on back of strong demand.

For Gujarat NRE Coke, how has the per tonne realisation moved over the last four quarters and, the likely trend going forward?
In March 2009, the price was around $230 and now it is about $450 per ton. I expect the coking coal and coke market to be tight, and hence, prices to be firm depending on buyer's appetite.

What are your volume targets for 2009-10 and 2010-11?
In 2009-10, we expect to see an increase in total volume of met coke production by around 20 per cent. This is further expected to rise by another 25 per cent in 2010-11. This would be supported by similar increase in production of coking coal from our Australian mines.

What are your expansion plans in the domestic and international markets and how are you planning to raise the funds for the same?
We plan to increase our met coke production from current capacity of 1.25 million tonne per annum (MTPA) to around 4 MTPA in next four years. Also, the production of coking coal from our Australian mines is slated to increase to around 6 MTPA from current level of over 2.2 MTPA.

The funding of the same would be through a mix of internal accruals as well as long-term financing from banks.

For the last four consecutive quarters, Gujarat NRE’s sales have been falling compared to the corresponding period of previous year. What was the reason? And, what can we expect going forward?
2009-10 saw a decrease in volumes compared to the corresponding period of 2008-09, due to no demand from export market. Though there was no considerable slump in domestic market, the absence of exports made all the difference. The global demand is picking up steadily and we expect to report an improved performance in 2010-11.

What is your market share in India and, do you see it improving going forward? Also, if you can tell us more about the opportunities for met coke in India?
Gujarat NRE Coke is the largest independent producer of met coke in India, with a market share of around 10 per cent in non-captive sector. As India targets to produce around 200 MT of steel per annum by 2020, from current levels of around 53 MTPA, the demand of met coke is bound to rise many folds. This itself speaks of a great future ahead.

How much demand will this generate and what advantage Gujarat NRE Coke has in this?
At 200 MTPA, India would require met coke of around 120 MTPA and coking coal of around 170 MTPA. This translates to around 158 MT of net import demand of equivalent coking coal in India.

Gujarat NRE with secured supply of premium quality of coking coal from our Australian mines is well poised to take benefit of this huge demand surge of coking coal and met coke in Indian market. To take benefit of this huge potential demand, we are expanding our met coke production in India to around 4 MTPA in next 4 years

What is your current coal reserve? How are you planning to explore these mines in the coming years?
Gujarat NRE owns and operates two hard coking coal mines, NRE No 1 and NRE Wongawilli, in NSW, Australia. Gujarat NRE is the only Indian company with coking coal mines in Australia having more than 560 million tonnes of metallurgical coal resource with excellent coking properties. The coal mines are owned through its subsidiary – Gujarat NRE Coking Coal, listed in Australian stock exchange ASX.

We have invested around Australian dollars (AUD) $300 million and plan to further invest AUD $500 million in coming 3-4 years, to increase the production to around 6 MTPA from current levels of around 2.2 MTPA. We have introduced longwall mining in NRE Wongawilli to increase the production. NRE No 1 upgradation is also underway with longwall tender process in progress.

There are plans of allotting coal mines to domestic steel companies. Besides, there is an increasing trend of Indian steel companies going abroad to acquire coal mines. Do you perceive these developments as a threat?
India does not have enough proven resource of good quality coking coal. Thus, allotment of coal mines would not be a panacea to the scarcity of coking coal in India. Indian steel companies scouting for coking coal mines abroad is a natural consequence of its lack of availability in India. Having said that, the future demand potential is so huge in India, we do not perceive it as any threat to us at all.

How do you plan to deal with the cyclicality in the industry, particularly in the steel industry?
We in Gujarat NRE believe that any downturn would naturally be followed by an upswing. Hence, we use every down cycle to invest in our capacities to take benefit of the next upturn. Moreover, our secured supply of raw material in the form of coking coal from our Australian mines, help us to hedge against any cyclicality in the industry.

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