Uncertain times abroad may affect coal, ore importers
India’s metal and power producers could be up for uncertain times. Between now and 2019, the raw material sourcing teams for these companies will keep a close eye on the changing geopolitical picture of at least three countries — Indonesia, Australia and Mozambique. The first two prepare for elections and one is facing unrest.
According to export-import data, between April and June (first quarter of 2018-19), close to 3.5 percent of steam coal import and 4.3 per cent of coking coal import was from Mozambique. “Companies like Rio Tinto and Coal India went to Mozambique looking for potential supply of coal. However, withtheongoing situation, these investments have not proven to be a great one,” said Tim Buckley, director of energy finance studies at the US-based Institute for Energy Economics and Financial Analysis (IEEFA).
Australia and Indonesia face general elections in 2019, as India does. It is certain there would be an impact on India’s raw material flow and adoption in different countries of an energy conservative tone is likely. It is unclear if this would be favourable for India.
Export-import data suggests in the June quarter, 69 per cent of coking coal import was from Australia and 62 per cent of steam coal import from Indonesia. In the power sector, JSW Energy and Tata Power are among those with exposure to imported coal. The domestic steel industry sources its coking coal from Indonesia and, to some extent, from Mozambique. JSW Steel and Jindal Steel & Power are among those importing coking coal. While iron ore is largely sourced from the domestic market, players have also engaged in sourcing it from Australia during supply shortage or high price situations.
“Indian importers and consumers have to keep their ear to the ground but cannot do more unless there is clarity,” said Anjani K Agrawal, partner at consultants Ernst & Young. The unrest in Mozambique is one event that importers would want to stay abreast with.
Some already see supply disruption and higher prices as possible outcomes. “We believe the unrest in Mozambique and elections in Indonesia and Australia could have a significant negative impact for Indian companies. There are high chances of supply to be disrupted and for prices to increase. Overall, these events are leading India to face major headwinds,” says Anshuman Maheshwary, partner at consultants at Kearney.
Some say clean energy policies could make it to election manifestos but not see ground implementation. “Though Indonesia keeps talking about various new regulations which could hamper coal export from that country, one should not be too worried,” said a Singaporebased analyst, on condition of anonymity. “Time and again, regulations like insistence on using Indonesian vessels for coal trade or compulsory insuring with an Indonesian insurance provider ares discussed. However, the country depends on export revenue and even if there is a change in government, they cannot afford to implement such regulations.”
Amid the uncertainty, state-owned companies are exploring government to government platforms. Hindustan Copper, National Aluminium Company and Mineral Exploration Corporation will be setting up a joint venture in the next six months, which would look at exploring rare elements abroad such as palladium and platinum. Each of the three is likely to have about a third of the equity. The JV will provide a government to government platform. These rare metal elements have huge application in space research and defence equipment.
Buckley from IEEFA says if there is pressure from the financial side on Indonesia to stop giving huge capital subsidies for new plants, it will make more coal free for export.