'There is no way domestic coke production will go up'

Arun Kumar Jagatramka, vice-chairman and managing director of Gujarat NRE Coke, India's largest producer of the material, says no significant price correction is possible in the year ahead. At a time when there is huge demand for coking coal by the steel industry, Jagatramka thinks domestic production will fall short by a wide margin. He talks to Sudheer Pal Singh about market mechanisms of the raw material and the company's plans for the year ahead. Excerpts:

What is your outlook on domestic coking coal production?

India's production stands at around 8 million tonnes and I do not see it going beyond another 1-2 million tonnes. In fact, 5-7 years ago, we were seeing production going down gradually to 6-7 million tonnes.  As for coking coal, we do not have it anywhere else other than the Jharia coal fields in Jharkhand. The quality is also not very good for steel-making. So, the Indian steel industry will continue to depend on imported coal.

So you do not see domestic production going up?

There is no way. We agree that with an additional 200 million tonnes of steel to be produced in the country, another 120-200 million tonnes of coking coal will be required. Where will this come from?

Which are the foreign sites you are looking at?

We have two mines in Australia, both of which we operate. The yearly production from both mines together is 1.1 to 1.2 million tonnes. We are also working on developing these mines, to reach a production level of at least 7 million tonnes in another four years. We are not looking anywhere else.  Almost 85 per cent of our coking coal comes from Australia. The country supplies or exports 60 per cent of the total coking coal in the world. 

What are your capex designs for the 11th plan period?

In India we are planning to increase our coke production to 1.25 million tonnes by March next year from 1 million tonnes. We are further developing a one million tonne greenfield plant in Nellore, Andhra Pradesh, and a further half-a-million tonne plant in Dharwad, Karnataka. This will take the capacity to 2.75 million tonnes by December 2010. We are aiming at having around 4 million tonnes capacity by 2012.  In India, till 2010, the total capex would be to the tune of Rs 1,000 crore (Rs 10 billion). In Australia, the capex for the next three-and-a-half years would be around $450 million (nearly Rs 1,700 crore or Rs 17 billion). In Nellore alone, we are investing Rs 350 crore (Rs 3.5 billion).

Coke prices have gone up significantly from $ 160 in January last year to about $ 720 now. What has been the impact on your margins?

In January 2007, the margins were almost negative or zero. Coke prices have gone up 3-4 times as a result margins have improved in the current year.

How much is the company's annual average realisation?

In March 2008, our average realisation was around Rs 9,000-11,000 per tonne. This year, it should be around 18,000 per tonne or more as the prices have gone up. The June quarter volumes were around 150,000 tonnes and realisation were around Rs 18,000 per tonne.  

Do you expect a correction in coke prices next year?

No. Generally, coke prices come down from February to September. The trend in the last 10 years shows that the prices have always moved up from September. But this year, the higher price levels have sustained and have even gone up further. So, from a market perspective, I do not see it going down.

Austral Coke has rejected your allegations saying that it is a family dispute between you and them.

I do not think it is a family dispute. I have not claimed any of their properties, neither have they. They misled investors using our name. A dispute of a public listed company cannot be treated as a family dispute. Though I have filed a suit against them in the Kolkata court for Rs 4,761 crore, I believe the loss they have done to me is unquantifiable.