JSW Seeks African Coal to Beat Australian Rains: Corporate India

By Abhishek Shanker - May 22, 2012

JSW Steel Ltd. (JSTL), India’s second- largest importer of coking coal, is turning to Rio Tinto Group’s Mozambique mine this year for the fuel as weather and labor trouble in Australia threaten to disrupt output expansion plans.

Overseas purchases of coal to fire JSW’s blast furnaces will increase to 6.5 million metric tons in the year ending March 31 from about 5 million tons the previous year, Director Jayant Acharya said in an interview, without disclosing the quantity sought from the African mine. Supplies from Australia, the world’s biggest coking-coal exporter, have become erratic following rains and strikes in the first quarter, he said.

JSW, which imports all its coking coal needs, expects to increase steel production by at least 15 percent this fiscal year to 8.5 million tons, Chairman Sajjan Jindal said last week. Shipments from Rio’s Benga project, in which Tata Steel (TATA) Ltd. owns a 35 percent stake, will start from this quarter, Rio Chief Executive Officer Tom Albanese said on May 15.

“Africa, particularly Mozambique, is seeing new coal production and that’s good news for Indian buyers that are primarily dependent on Australia,” said Giriraj Daga, an analyst at Nirmal Bang Securities Ltd. in Mumbai. He has a “sell” rating on JSW.

JSW, which had a 3 percent decline in fourth-quarter profit due to higher costs, gained as much as 2.5 percent to 626.30 rupees and traded at 618.90 rupees as of 9:49 a.m. in Mumbai. The shares of India’s third-largest steelmaker have advanced 22 percent this year, compared with a 5.2 percent increase in the key Sensitive Index. (SENSEX)
Benga Quality

JSW expects coal from the Benga mine to meet its quality standards after imports from Vale SA’s mines in Mozambique last quarter matched specifications, Jayant Acharya said in the telephone interview yesterday. JSW has also increased coal purchases from the U.S., Colombia and Canada, he said. The company owns coking coal mines in the U.S.

“As a strategy, we need to source raw materials from various countries to protect against any risk that may impact supplies,” Acharya said. “While Australia is a big source, floods, rains and labor strikes have affected coal output.”

JSW, which expanded its biggest factory, in Karnataka, by 47 percent to 10 million tons in July, failed to achieve full production capacity because of a shortage of iron ore, the key raw material. India’s top court banned mining in the southern state’s iron-ore rich regions in August, citing environmental violations. Last month, it allowed some mines to seek government approval to resume operations.
Imports, Exports

Steel Authority of India Ltd., the nation’s largest importer of coking coal, buys as much as 70 percent of its requirement from overseas. The New Delhi-based, state-owned company, will probably increase purchases this year after its new capacity comes on stream by March. Tata Steel, India’s biggest producer, imports almost 45 percent of its coal needs.

Rio, the world’s third-largest miner, will export 4.1 million tons of coking coal to India this year from the Benga mine, Noticias newspaper reported on May 4, citing unidentified company officials. Vale’s Mozambique unit will probably export a similar quantity this year, Operations Manager Paulo Horta said on April 24.

Tata Steel, which is entitled to 40 percent of the output from the Benga mine, may start receiving supplies as early as this month, Managing Director H.M. Nerurkar said on May 18. The European unit will get as much as 800,000 tons, or about 10 percent of its coal requirements, from the mine, he said.

BHP Billiton Ltd., the world’s biggest coking-coal exporter, may miss deliveries from its Australian mines after labor strikes and rain affected output, Fiona Martin, a spokeswoman for the Melbourne-based company, said on April 2. Peabody Energy Corp., the largest U.S. coal producer, on March 23 said storms and flooding in Australia’s Queensland state will reduce first-quarter earnings by about $50 million.
La Nina

La Nina weather events affected the eastern part of Australia for a second consecutive year. The pattern, which passed in March, after peaking in January, brought higher-than- normal rainfall to the area, while causing droughts in the southern region of the U.S. and South America. A global shortage of coking coal sent quarterly contract prices soaring to a record $330 a ton last year after the worst rains in 50 years hit Queensland.

Coking coal prices may rebound as early as July from four straight quarterly declines as China and India seek raw material overseas to fire new steel production. Contract prices that fell to $206 a metric ton for the quarter ending June 30 may rebound to average $225 a ton this financial year, based on the mean estimate of 10 analysts, steelmakers and mining companies surveyed by Bloomberg last month.

To contact the reporter on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net

To contact the editor responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net
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