Coal Insights, April 2014

Contents 6 Spot steam coal prices exhibit mixed trend 8 Coking coal prices firm up in April 12 SCCL targets 55 mt of production in 2014-15 16 CIL misses FY14 output, off-take target 18 Pet coke availability in India may ease by year-end 22 India’s cement production falls 6.91% in Feb m-o-m 24 Not exactly looking good on ‘paper’ 44 Saurashtra Fuels ties up with US firm for power plant 46 BSL plans 7-m top-charged coke battery 47 CIL may end up with a fall in net profit in FY14 47 Bridgestone expands footprint in India 48 Valuejunction successfully auctions Tata Hitachi’s idle assets 49 Will shale gas be China’s booster shot?

50 Indonesia move may not harden global coal prices 51 UK scientists discover huge coal deposits in North Sea 52 US coal consumption at 925 MMst in 2013: EIA 53 Rake shortage fuels spat between Railways, CIL 55 Coal handling by major ports at 104.72 mt during Apr-Mar 56 Railways coal handling up 13.61% m-o-m in March 57 CIL PF dues, coal mine auctions key talk points

4 Coal Insights, April 2014

23 | Feature

Cement sector looks at hard reality in centenary year

25 | Expert speak

The sector sets a production target of 479 mt by 2016-17, banks on policy changes postelections.

Will the new govt be able to deallocate captive blocks?

Such an action will tantamount to committing economic and political harakiri, says J P Panda.

26 | Cover

‘ECL will come out of BIFR in 201415’

36 | Technology

Once written off, Eastern Coalfields Ltd is bringing new hopes for India’s stagnated coal industry.

India needs a technology mission to succeed in mining There is a strong case for an umbrella organisation for capacity build-up, says A K Mukherjee.

45 | Corporate

BHEL forays into coal washery biz The engineering powerhouse will join hands with tech partners to bid for upcoming projects.

coal market fundamentals

Spot steam coal prices exhibit mixed trend Coal Insights Bureau

S

pot steam coal prices showed mixed trends in April on cautious buying from India and China, industry sources said.

South African coal (6,000 kcal/kg NAR) prices rose to $78.15 per ton FOB on April 16 compared to $73.40 per ton FOB on March 31. Australian coal (6,300 kcal/kg GAR) prices fell to around $73 per ton FOB on April 16, down from $75.25 per ton on March 31, according to information available with Coal Insights.

Indonesian (ID) coal (5,900 kcal/kg GAR) prices also dropped marginally to $67 per ton FOB on April 16 compared to $68.30 per ton on March 31. Prices of Indonesian coal (5,000 kcal/kg GAR) rose marginally to $54.85 per ton FOB on April 16, compared to $54.50 per ton on March 31.

Industry sources said coal stocks at power plants in India have improved considerably in the last few months despite Coal India Ltd (CIL) missing its production targets. This has raised hopes of less power cuts during summers in India.

Sources said stocks at some 80 thermal power stations have touched 19 million tons, which is enough for 15 days generation.

Apart from Uttar Pradesh, Andhra Pradesh and to some extent Tamil Nadu, power demand during peak hours has been mostly met and there is a only a shortfall ranging between 1 mw and 300 MW. Demand in states like Punjab, Rajasthan, Himachal Pradesh, Chandigarh, Gujarat, Puducherry, Jharkhand, Odisha, Sikkim and Tripura have been fully met with no peak period shortages.

Barring 14 power stations, all other stations in the country have stocks that will last between seven days and two-and-a-half months, according to the Central Electricity Authority.

Although coal stocks at thermal power plants in Uttar Pradesh can last for 20 days, the state has been suffering due to an inadequate distribution network, said a senior official.

Price outlook bearish

Thermal coal prices are likely to fall in 2014

Steam coal FOB ($/ton) Dates

24 March 2014 25 March 2014 26 March 2014 27 March 2014 28 March 2014 31 March 2014 1 April 2014 2 April 2014 3 April 2014 4 April 2014 7 April 2014 8 April 2014 9 April 2014 10 April 2014 11 April 2014 14 April 2014 15 April 2014 16 April 2014

SA (6000 NAR)

Aus (6300 GAR)

ID 5900 GAR

ID 5000 GAR

ID 4200 GAR

ID 3800 Kcal GAR

75.25 73.50 72.75 73.25 73.25 73.40 73.40 73.40 73.75 74.75 75.50 75.60 75.75 76.00 76.40 76.50 77.75 78.15

73.25 72.50 72.80 74.25 74.50 75.25 74.50 74.00 73.50 73.50 73.60 73.30 73.20 73.40 73.60 73.60 73.60 73.00

68.80 68.80 68.60 68.60 68.30 68.30 68.10 68.00 68.00 67.50 67.50 67.20 67.00 67.00 67.00 67.00 67.00 67.00

55.00 55.00 54.80 54.80 54.50 54.50 54.50 54.50 54.50 54.50 54.50 54.70 54.70 54.80 54.80 54.80 54.80 54.85

37.00 37.00 37.20 37.30 37.30 37.30 37.30 37.50 37.50 37.50 37.50 37.20 37.00 36.80 36.80 36.80 36.90 36.90

32.10 32.10 32.10 32.25 32.25 32.25 32.25 32.25 32.25 32.25 32.25 32.00 31.80 31.80 31.80 31.80 31.80 31.70

6 Coal Insights, April 2014

as mining output increased in an already oversupplied market while demand in emerging markets dropped amounting to a third straight year of declines.

Prices of coal, the top fuel used to generate electricity in the world, have halved from a peak in 2011 and are down almost 70 percent from their all-time highs in 2008. Analysts say they are likely to weaken further.

“As global output is now set to expand, we believe the supply overhang will persist and revise our forecast for (Australia’s) Newcastle coal lower to $74 per ton as an average for 2014, down from $82 per tonne previously,” Bank of America Merrill Lynch said in a recent research note.

Analysts said the low prices were a result of healthy mining output in export countries such as Australia, Colombia and South Africa combining with weakening demand, especially in China and emerging markets.

“Excess supply from producing countries exacerbated by weakened Asian demand growth have continued to affect current international coal trade price behaviour significantly,” French bank Societe Generale said in a research note.

Analysts said that Chinese efforts to begin using more natural gas for power generation rather than coal, which is dirtier, could further erode thermal coal markets.

“A combination of widespread loan defaults ... and clean air initiatives in China could spell even more trouble for sea-borne coal in the months ahead,” Bank of America Merrill Lynch said.

China’s Premier Li Keqiang recently said the country would “declare war” on pollution and that the government would unveil detailed measures to tackle what has become a hot-button social issue.

Despite the current oversupply and weakening demand, analysts said prices could begin picking up towards next year.

“The situation should improve in 2015, when demand from Asia (primarily India and China) has the potential to act as a primary catalyst in hastening the reduction of the current oversupply in the market,” Societe Generale said.

Bank of America Merrill Lynch said that “the sea-borne market looks a bit more balanced in 2015 as exports slow due to mine ramp-ups tailing off, and imports improve with global economic activity”.

Cover Story

ECL will come out of BIFR in 2014-15’ Rakesh Dubey & Arindam Bandyopadhyay

W

hen Eastern Coalfields Limited (ECL), the birthplace of coal mining in India, reported sick for the second time in 1999, many considered it as the “last lost company”. Even a financial restructuring and conversion of debts into equity didn’t yield much. Huge cash losses, erosion of networth, stagnated production, rampant coal theft and terror unleashed by the coal mafias had turned ECL into a company best be written off.

Cut to 2014. The same entity is on the threshold of an astounding turnaround. Not only its production growth topped all Coal India Ltd (CIL) subsidiaries, the company became the only one to record a growth in underground mining in 2013-14. A prolific physical growth has resulted in marked improvement in financials and, of course, a positive networth. All in all, ECL now stands at the threshold of turning black. And a formal announcement is only a matter of time.

If that makes an exciting corporate turnaround saga, the architect of this change is just as awe-inspiring. Meet Rakesh Sinha, Chairman-cum-Managing Director, ECL, and you know what all went right for the company after years of turbulence. In an exclusive interview with Coal Insights, Sinha talks about the immense challenges facing the company, the systematic remedies that were put in place and the bright future that awaits it, going forward.

26 Coal Insights, April 2014

Cover Story Vital statistics

Excerpts: Let’s start with the good news. When could we expect ECL to come out of the Board of Industrial and Financial Reconstruction (BIFR) purview and be declared a profitable entity?

We shall be coming out of the BIFR soon, two years ahead of schedule. Once the financial results for 2013-14 are declared, with the approval of the board, this can be declared. This year, our net worth would be positive. So we are all happy!

Till 2011, ECL’s name was taken as a lost company, even in the corridors of Delhi, but now everybody looks at us differently. In the last two years, ie, 2012-13 and 2013-14, we have steadily maintained our growth to remain at the top amongst all Coal India subsidiaries, in terms of production, overburden removal (OBR) and off-take.

In 2012-13, our growth rates in all the three items were in double digit. Last year (2013-14), only OBR growth was in double digit. In production, our growth has been 6.5 percent, and still it was the highest among all the Coal India subsidiaries. We achieved 104 percent of our production target last year. In OBR, our achievement was 130 percent of the target, and in offtake, we achieved 103 percent. This was despite going through a tough phase in the first six months of the financial year.

What has been the change-agent at ECL? Well, there has been a change in the overall work attitude. I take decisions promptly, head-on and want to clear things fast.

This, I think, has helped in speeding up operations.

Today, my chief general managers (CGMs) know if there is a problem,

Leasehold area

753.75 sq. km.

Surface right area

237.18 sq. km.

Coalfields

Raniganj (WB*), Saherjuri (Jh**), Hura (Jh), Mugma (Jh)

Operating mines

98 (77 underground, 21 opencast)

Manpower

72,973 (as of July 1, 2013)

Coal reserves (up to 600 mtrs)

49.17 bn tons (as of April 1, 2012)

Proven reserves (up to 600 mtrs)

16.94 bn tons

Coal production (mn tons)

36.04 mn tons (2013-14)

Coal offtake (mn tons)

36.22 mn tons (2013-14)

*West Bengal

it will be taken up in right earnest at the headquarters. I call the heads of departments (HOD), and tell them very clearly that they cannot sit on the files.

Moreover, if they want any clarifications, they must get the same from the people around….

Now, with everyone understanding my intentions, things are moving fast; proposals are put forward and get cleared. Everything is under control. Work is two years ahead of schedule. The unions are also happy to see the progress.

What are your expectations regarding the current year?

We are confident of returning to doubledigit growth in production, yet again, and should do well financially too. There are two reasons for that.

Nobody had earlier thought that ECL could produce more that 30 million tons (mt) of coal a year; so our linkages were limited. In 2012-13, we produced 34 mt of coal and despatched 35.8 mt. Thus, all the power houses raised their hands, saying that they were overloaded with coal. We tried our best to pursue the Ministry of Coal (MoC) and also Coal India to give us

We are planning to amalgamate all the small mines and go for high mass production technology. This will help us to reduce the barrier coal that remains left between two mines. It will also cut down manpower requirement and help us cope with the reduced workforce. Otherwise, in every small place, you have to keep so many statutory processes. That will be stopped.

**Jharkhand

more linkages, but these materialised only from September-October. So, in the first six months, our production and despatches suffered but, in spite of that, at the end, we managed to score over 103 percent target on the achievement parameter.

This year, we have the linkages from the beginning and our growth so far has been in the range of 30-40 percent. We expect it to be at least double digit at the end of the year.

There is another factor. Last year, the power consumers were reluctant as they were getting cheap imported coal which they preferred and the state utilities were not exactly abiding by the clause of prior payment. As a result, our dues went up to `3,800 crore, including `1,300 crore from NTPC, `1,300 crore from West Bengal Power Development Corporation (WBPDCL), `600 crore from Damodar Valley Corporation (DVC), `400 crore from Tamil Nadu Electricity Board (TNEB) etc. From September onwards, followed by the Coal India CMD’s meet, we strictly followed the cash-and-carry system. We issued letters to all power generators, stating that because of such high dues, the Comptroller & Auditor General of India (CAG) directed that some provisions must be kept with regard to the dues.

We said whatever money you pay us now, we will give coal for 50 percent of that amount and the remaining 50 percent payment will be adjusted against old dues.

No one could object because they had high outstanding payments. That’s how our dues got reduced very fast and now these have come down from `3,800 crore to only `1,000 crore.

The dues left to be recovered are not disputed. In some cases, we consider the

Coal Insights, April 2014

27

TECHNOLOGY

“Swavalamban” is the key

India needs a technology mission to succeed in mining Ashim Kumar Mukherjee

C

ontribution of technology in enhancing efficiency and productivity is a given. The mining industry has an old history and is not an exception to this norm. Technologies used in today’s mining machineries are far superior to those used in any manufacturing- based or process industry.

With the passage of time, this has resulted in the evolution of newer technologies and mining machines. Organisations have realised over time that it is not only the efficiency level of workers but providing them with the latest updated machines and technology is a sine qua non. That’s why investment in R&D and innovations are not treated as an expense today. Rather, these are regarded as a pre-requisite for increased utilisation, decreased life-cycle costs and less downtime.

No technology can function in isolation.

One is dependent on the other. Making a computer chip is a technology but suitable software is also required to enable the chip function. An engine may be “best” on its own, but such a quality can only be judged when it is wired into a car. It is a similar scenario with mining technology. Varieties of basic machines, support equipment, hardware, software, logistics support, safety and rescue apparatus specific to different mining methods are required. To make the matter simple, any or all such machines or technologies as may be applicable for mining jobs, had been termed in this paper as “mining machinery”. This may be an heavy earth moving machineries (HEMM), load haul dumper (LHD), SDL, shearing machine or spectrometer for wear debris analysis of used oil, operator independent

36 Coal Insights, April 2014

truck despatch system (OITDS) for monitoring of operations in an opencast mine, radio frequency identification (RFID) for identification of store items etc.

Enhanced productivity through technological input can only be achieved when our country becomes self-reliant.

We must ensure that “every tub must stand on its own bottom”. India must achieve swavalamban or self-reliance in the technology required for manufacturing mining machineries. This necessity can be summed up from a quote of Chief of Naval Staff Admiral D K Joshi: “Swavalamban

is not just atmanirbharta or self-reliance; it is the ultimate status and a state of mind of the King...

The route to swavalamban goes via self-reliance and capacity building.

Swavalamban is the ultimate goal of the nation if one has to be prosperous, secure and developed.”

Technology growth compared

A study of the evolution of today’s mining haul trucks reveals that in 1934, the GRAFF and HIPPLE wagon dumper was patented. This was a four-wheeled horse-drawn flatbed wagon with a rectangular body lifted with a hand hoist in the front. A very simple technology was employed – dump body pivoted off centre and when level, would be locked in place – releasing the lock by hand hoist would activate the body to enable it to dump to the rear. When empty, the dump body would remain latched. Centre of gravity would shift when loaded. Dumping would be activated by means of unlatching through the hand-hoist employed, with the necessary force for unlatching acquired through the leverage system (Fig.-1).

Fig.-1: GRAFF and HIPPLE wagon dumper patented on 27.05.1934

TECHNOLOGY Technology development is not stagnant; it is leap-frogging today. The mining industry is not an exception. Globally, R&D is under way at a frenetic pace, giving birth to newer technologies almost daily. This has also resulted in the emergence of new areas of technology, which is evident by the successful use of dual-powered high-capacity mining haul trucks – diesel as well as electricallydriven (electric traction through pantograph and high-voltage electrically-driven trucks) 320 – 400T Komatsu trucks (Fig.-2).

As it now stands, the new 500T (450t), twin engine of 4,600 bhp, 65ft long, 26ft high, BELAZ 75710 will be the largest haul truck when it goes on sale in 2015. Currently, it is under testing at Siberia (Fig.-3).

Similar is the case with excavators. It has been reported that William Smith Otis (1813-1839) was the first inventor of the steam shovel, as shown in the figure below (Fig.-4).

Excavators, now-a-days, are highcapacity equipment, AC electric-driven, having excellent control, aided by computer hardware and software. In India, 42Cum electric shovels are being used. Similar is the case with underground mining. We have travelled a long way from the primitive board and pillar method to the latest Longwall, Continuous Miner, LHD, side discharge loader (SDL) technologies.

Technology industry

and

Indian

mining

The history of India’s mining industry shows

Fig.-3: BELAZ 75710 Dump Truck

that open pit mining or inclined workings were in existence in 1775 when 2500 maunds of coal were delivered to the government.

Quarrying was reported to have been carried out between 1820 and 1825 in the upper Barakar coal seams near the chanch of Barakar river (bordering Jharkhand and West Bengal).

In spite of such old heritage possessed by our country, there is hardly any technology employed for manufacturing of mining machineries which can be regarded as totally indigenous. Mining machineries developed

by Indian companies are the result of collaborative agreements either entered into in the past or recently with foreign companies.

Heavy Engineering Corporation Ltd had a tie-up with the then Machinoexport of USSR, Bucyrus Erie of USA; BEML Ltd with WABCO and Komatsu, also with Haulpack-Marion.??? (Did HEC have a tie-

Fig.-2: High Voltage pantograph mounted Komatsu make Dump Trucks

up with Machinoexport as well as Bucyrus Erie? Was it a 3-way JV?? Also, was it a 4-way JV between BEML, WABCO and Komatsu and HaulpackMarion??)

L&T Ltd now has a tie-up with Komatsu Inc, which, in turn, had set up its own manufacturing unit at Chennai. The earthmoving division of Hindustan Motors was taken over by Caterpillar India Ltd which is the Indian arm of Caterpillar Inc, US. Similar is the case with other machineries used by Indian miners.

Also, support systems like OITDS, radar-based slope stability equipment etc of foreign origin are being used in the mining industry. Even vital components like engine, transmissions, motors, generators used in indigenously manufactured machineries are imported. Some Indian companies have their own infrastructure and R&D centres but when it comes to technology, they look towards foreign companies.

If we take a re-look at India’s heritage in science and technology, it can be seen that more than 100 years after the first Indian mine was opened, a genius known as Srinivasa Ramanujam was born (December 22, 1887) at Erode under Madras Presidency (now Tamil Nadu), whose formula, contained in a letter written from his deathbed in 1920, puzzled mathematicians worldwide for 90 years and could only be solved in 2012!

It was acknowledged that this formula could explain the behaviour of black holes.

Amazing! At a time when people did not know what a black hole was, a mathematical formula capable of explaining its behaviour was conjectured by an Indian!

A century later, on April 4, 2014, the successful launch of PSLV-C24 recorded a remarkable feat in India’s space programme as it was the 25th consecutive successful launch of an indigenous polar satellite launch vehicle (PSLV). Technological brilliance was evident from the very assembling of the PSLV on the launch pad to the moving back of the vehicle assembly building.

At this same time, a fully imported surface-mining-dragline of 62.4cum bucket and 100m operating radius was under way in the erection yard of an open pit mine located at a remote location in Madhya Pradesh. The superiority of technological input in this imported dragline was definitely not that delicate and intricate as it was for the PSLV-C24 carrying India Regional

Coal Insights, April 2014

37

Tear along the dotted line

62 Coal Insights, April 2014 Tear along the dotted line