Overview on Imported Coking Coal Security For Sustainable Growth Of Indian Steel Sector

Overview on Imported Coking Coal Security For Sustainable Growth Of Indian Steel Sector Harsh Sachdev Managing Director, S&T Mining (A SAIL-TATA Steel JV Co.) Coal Market in India-2013, New Delhi 27th Aug, 2013

Index • Steel – The Global Scenario & Emerging Trends • Raw Material & Coking coal Availability . • Steel – The Indian current & emerging Scenario . • Indian Raw Materials & Coking Coal Scenario • Coking Coal – Domestic Issues – Emerging Legislation • Imperatives & issues

The Global Economic Status Difficult global business scenario prevailing • Global Economy: • A marked downturn over the past two years (Global GDP to remain sluggish 2.8% in 2013 compared to 3.9% and 3.2% in 2011 & 2012 respectively) • Most regions likely to see a moderate pick-up, but growth to be below potential Country ---Real GDP(2013) • US --–-----------1.5% • Canada --------1.7% • UK---------------1.0% • Germany ------0.3% • China------------7.3% • India ------------5.5% • Brazil ------------2.5% • Employment gains to remain weak at best. • Financial uncertainty & Crises • (Reduced liquidity in the market- higher cost of borrowing) Newport Mining Outlook Report 2013-14 Source :Scotia Bank

Global Steel Trends • Global Steel Production in 2012 at 1.5 Bn. Mt was a growth of 0.7% over the PY. This has been slowest rate of growth since the economic downturn of 2008. EU was a decrease of 4.7 %, Germany a decrease of 3.7 %, North Amercia an increase of 2.5 %. • In the top 10 Steel producing nations , China, U.S., India , Russia , South Korea & Turkey grew in 2012. • Modest steel demand pickup expected in 2013. • China was 46.3 % of the world Steel Production in 2012 & is expected to continue to dominate Global Steel making till 2020.

Steel:Global Scenario & Emerging Trends • Expected Steel Demand Growth in 2014 • China: 2.5% • India: 7.0% • Japan: -0.6% • US: 2.9% • Central & South America: 43% • EU 27: 3.3% Future demand Growth Driver: Further economical development rather than recovery in developed world. China to remain dominant steel producer & consumer Indian steel demand to grow faster

Steel:Global Scenario & Emerging Trends • Crude Steel production (2.1# Bill. T.) is expected to marginally exceed the global demand (2.09* Bill. T.) in 2020 . • China to witness addition of more capacities along with consolidation of marginal players. • India too to add more capacities in current decade • Addition of more than 100 Mill. T. capacity by 2020. # Source: Deutsche Research,

Impact On Raw Materials • Over 70 % of Steel made is through the BF route & is hence impacted by the costs & availability of raw materials, specially coking coal. • Major volumes of Iron Ore & coking Coal are required. • 1.6 tonne of Iron –ore and 0.9 tonne of coking coal for 1 tonne of Crude Steel • RM cost as a proportion of total cost of steel companies is a very significant & is a key driver of total steel cost . • Iron Ore comprises: 30% of Cost • Coking Coal: 26% of Cost

Global Iron Ore Total Reserves of Iron Ore: 800 Bill. T. • About 800 Bill. T. of Iron ore reserve with 230 Bill. T. of Iron Content have been proved • World iron ore export dominated by –Brazil & Australia • Key iron ore consumers: China, Japan, US, India and Russia

Global Coking Coal Production: 2010-2020 Slow down of global demand growth, still driven mainly by China, India and South America Globally Coking Coal Reserve: 246 Bill.T. Coking Coal demand to grow at ~3% per annum during current decade Coking Coal Production to shadow Steel Growth Globally

Global Coking Coal Import & Export:Present & Future Australia to remain a dominant exporter though there will be emergence of new sources like Mozambique … China to overtake Japan as leading coking coal importer. Global Coking Coal export (2008-2015F) Global Coking Coal import (2010-2025F) 2013 : Australian Met coal export expected to grow by 11% US to decrease by 5% y-o-y to 54 Mill. T. Canada to increase 3% y-o-y to 31 Mill. T. Mozambique 4-4.5 Mill.T. from Maotize mine, Vale Mongolia not likely to grow in 2013 Source: KPMG Qtrly, March 2013 China’s import to increase by 18% in 2013 y-o-y to 58 Mill. T. – due to restocking of steel India import to increase to 36 Mn in 2013 Imports by EU to remain flat at around 46 Mill. T.

Steel Indian Scenario - Current • India’s Steel Production • has risen steadily over the • Last decade. At 77 Mn. T • India is the 4th largest Steel • Producer Globally. • In 2012 it was a nett importer of Steel , mainly special grades. • The per capita consumption of • Steel in India remains low . • A high potential for growth.

Steel Indian Scenario - Emerging Yr 2020: India to witness emergence of 5-6 players controlling 65~70% of total prodn 180 107 With 77 Mill. T. of Crude Steel production in 2012, India is behind China , Japan & the USA . By 2016, India is expected to become world’s 2nd largest crude steel producer Fast urbanisation to drive India’s steel Industry growth

2020: India to emerge as net exporter…… Steel Export moving to China , India & South Amercia

Iron Ore – The Domestic Scenario • With 18 Billion Tonnes (approx) of Haemetite and 11 Billion Tonnes (approx) of Magnetite resource, India is self sufficient to fulfill its Steel Industry requirement. • With a ban on illegal mining in Goa & Karnataka – Iron Ore output fell to 167 Mn. Tonnes in FY 13. Imports started. • The government of India, is taking various measures, including approaching the supreme court to correct the situation. • In 2020, India to consume ~300 Mill. T. of Iron Ore for producing 180 Mill. T. of crude steel.

Coking coal sources for India: 2012 Coking Coal Sources (2012 Increased dependency on overseas coking coal mining countries Australia to remain a dominant coking coal exporter to India *Indigenous coal at 17% avg ash, while imported met coal ash ~10%

Met Coal Consumption Forecast…. 2020: India is expected to import whopping 83 mill. T. of coking coal (apart from 10 mill. T. of PCI) equallingforex outgo of atleast USD14* Bill. Per year. Total 93 Mill. T. of metallurgical coal import implies that 86 % of India’s BOF steel production to depend on imports – High risk exposure Hot Metal/Pig Iron Production -BOF * At USD 170/t of coking coal price; conversion 1USD = Rs 54

Coking Coal - Domestic Issues • A need to separate “Coking Coal” from Coal . At present Coking Coal also being used to meet India’s Power requirements . An opportunity for washing low grade of Coking Coals , to enhance valuations. • An increase in the infrastructure to evacuate coal from Pit heads to the point of consumption. Adequate Railway sidings & rakes. • Implementation of the Jharia Action Plan in the prime coking belt of India. Jharia has 5.3 Bn. tonnes of prime coking coal & 6.1 Bn. tonnes of medium coking coal , which has been on fire . • A concept of a “Single window Clearance” wherein all clearances which are sought are applied for, in one place, within the various Government departments. • Mining is a “Site Specific Activity “ and hence the same cannot be shifted to an alternate location. The Government needs to play a role a major facilitator in acquisition of land for critical coal projects . • Upgrading of efficiency levels by use Mass Production Technologies – Larger sizes of Heavy Earth moving Equipments in Opencast Mines & mechanization in underground mines .- Average output of underground mines is well behind global output at approx. 0.2 MTPA. Some of these issues are under active consideration .

Domestic Legislative Environment • Time taken in getting statutory clearances impact coking coal projects execution timeline. • A process of defined time frames for clearances , / default clearances in case of delay’s needs to be examined . • Emerging legislation making coal mining more complex & expensive , will increase lead time to starting coal production. • LARR • Consent of 80% Project Affected People (this might delay projects) • 4 times land price in rural and 2 times land price in urban area for compensation along with other compensation • MMDR bill • 26% of profit to be given to District Mineral foundation plus other taxes leads to overall tax of 61% for Indian coal Mining (against 30-40% in other countries). • Auction by competitive Bidding of Coal Mines Rules 2012 - Implemented for PSUs – Implementation for Private companies awaited . Legislation to ensure inclusive growth & welfare of local communities. Degree of complexity of Domestic Mining to increase .

Country Rating Investment options in Mining Countries

Country Comparison Mining Investment

Country rating for Mining (Behr Dolbear – 2012)

Country rating for Mining (Behr Dolbear – 2012) Australia and Canada are two most favourable countries for mining; Australia more favourable: Canadian coal has cost disadvantage compared to Australia in terms of freight

Investment by Indian Companies Since import is an imperative a number of Indian companies have already coal assets abroad……

Suggestions towards securing coking coal import • Inter-Governmental level of agreement for developing and operating overseas coking coal mines. • Using sovereign fund for developing infrastructures in emerging coking coal sources like Mozambique. • Mining companies should form consortium with Infrastructure & Logistics companies to invest in infrastructure in new geographies. • Priority clearances at Indian ports . • Construct a dedicated rail corridor in the country for faster movement of coal from ports to end user plants.

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Overview on Imported Coking Coal Security For Sustainable Growth Of Indian Steel Sector