Projected growth of sponge iron industry and demand of coal
The sponge iron industry growth has been on rise since 2003-04 positioning India as global leader in Sponge iron production. This rise is mainly because of growing demand for steel and scarcity of coking coal for steel production in India and For the 12th FYP it is expected that sponge iron sector will grow at a CAGR of 10 per cent and a likely increase of 2 per cent may be seen therein after at a CAGR of 12 per cent till 2020. The demand of coal will also rise in the same proportions for the sponge iron industry during the period listed above.The demand of coal and projected growth of sponge iron industry can be assessed under following three scenarios namely:-
- Business as usual (BAU)
- Rapid infra growth scenario (RIG)
- Slow infra growth scenario (SIG)
The scenarios listed above are explained as under:-
Business as usual (BAU):- In this scenario it is considered that the demand drivers of sponge iron industry will grow at the same rate i.e. the infrastructure growth will be registering a CAGR of 7 per cent till 2020. Thus, to meet the rising demand of the infrastructure sector the sponge iron industry will grow at a CAGR of 10 per cent in lieu of growing steel demand. Also, the demand of coal thus in turn by the sponge iron industry will grow at a CAGR of 10 per cent.
Rapid infra growth scenario (RIG):- In this scenario it is assumed that the infra growth for India will be at a CAGR of 8 per cent till 2020. Thus, sponge iron industry growth and the coal demand by sponge iron industry will follow the same CAGR rate of 12 per cent till 2020.
Slow infra growth scenario (SIG):- In this scenario it is assumed that the infra growth for India will be at a CAGR of 6 per cent till 2020. Thus, sponge iron industry growth and the coal demand by sponge iron industry will follow the CAGR rate of 8 per cent till 2020.
Under the above mentioned scenario the demand of coal by sponge iron industry and growth of sponge iron industry will grow at a same CAGR, as coal consumed in production of sponge iron of designate quantity is one-fourth of the sponge iron produced. The projected numbers are showcased in Exhibit 01, wherein the growth of sponge iron industry and growth in coal consumption is scaled for different listed scenarios.
Projected supply for coal
The sponge iron industry relies on domestic source as far as meeting coal demand is concerned. Almost, 98 per cent of the coal required by the sponge iron industry is sources locally. Earlier, in 2006-07 the share of imports in coal supplies to sponge iron industry was around 1per cent but in 2016-17 imports has grown to 2 per cent quantum of the total supplies to sponge iron industry. The chief source of coal supply to sponge iron industry has been CIL with nearly meeting 85 per cent of the demand.Most of the sponge iron companies have also been allocated coal blocks but lately the non-production has become an issue for the sector leading the sponge iron producer’s source coal from coal traders. The supply figures for coal are shown in Exhibit 02 .
Likely coal supply side challenges
The sponge iron sector in India faces major challenge of high calorific value domestic coal availability and more allocations to power and cement sector. The issues likely to impact coal supply for the sponge iron sector in future given the current scenario can be listed as under:-
Lack of high calorific value of coal: – The sponge iron manufacturers are facing this as the biggest challenge as most of the coals reaching sponge iron plants from domestic sources are usually of low calorific value. This is so because in India high calorific value coal are available to limited mine source of ECL and MCL and growing demand of domestic non-coking coal from mainly power sector in lieu of UMMP’s development in the states of Jharkhand and Odisha. Although, as of now it is being managed but going forward it will pose a major challenge for sustained production by sponge iron industry.
CIL eyeing to close down MoU route for coal supplies: – The move is going to lay its huge impact on sponge iron industry if implemented as for power industry. This will sponge iron manufacturers struggling to cope with fuel linkage tie-ups with CIL at a higher cost.
Stranded reserves of domestic coal due to improper utilisation: – The inability to mine coal from allocated coal blocks and even starting production. Initially the SI industry performed good by making allocated blocks achieve targeted production but in last 8-10 years the most of the allocated blocks are non-producing.
Coal sourcing options and models for sponge iron industry
Domestic sourcing option and models
The domestic sourcing options and models which can be looked upon are under:-
Joint-Venture with other sponge iron/steel companies and inking FSA’s with CIL:- This will enable even a small sponge iron manufacturing capacity unit to ensure coal supplies as the fuel linkage will be established
Bidding for coal blocks in partnership of mining Expertise Company: – The likelihood of winning a bid for coal block will increase and it will also ensure better exploration and mining process to enable with timely supply and avoid cost overrun.
Participation in the domestic coal market as trader: – This will also help companies building constant fuel supply and also will be bonus in terms of revenue if the sourced coal is traded.
Import sourcing option and models
The imports sourcing options and models are listed as under:-
Coal mine acquisition abroad in association with major steel companies:- This will provide a sponge iron company security in terms of fuel supplies of high calorific value and also it may explore the local market to sale coal in order to counter the high cost of imports
JV with power companies who already have acquired mines having high calorific value non-coking coal reserves: – This may be a very interesting model and sponge iron companies may arrive to an understanding of a certain proportion of coal utilisation at the same cost which ideally power companies would have been importing coal in India.