Striding Towards Success

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The coke consumption in India has clocked an astounding growth in the last decade, fuelled by the rapid growth in Indian steel industry which is poised to cross the 100 million tonnes annual production mark soon. A derivative of coking coal, coke is mostly used as a source of heat and also as a reducing agent, in the smelting process of metallic ores into metals. The major consuming sectors are integrated steel plants, which make their own coke and source part of their requirement from merchant coke plants. Others are the secondary steel producers, who are dependent on merchant coke plants. Presently, they too are moving towards securing their supplies and even partially producing it. Foundries and ferroalloy plants that have relatively smaller intake, usually depend on the local market for supply or import.

It is a known fact that coke, a key raw material in steel-making, has long been denied the strategic importance it deserves in the Indian industry. As the Indian steel capacity grew at an astounding rate of about 7 per cent p.a. over the last decade, Indian steel-makers continued to depend on imports from China and accorded second grade treatment to the domestic plant.

While analyzing the Chinese strategic moves vis-à-vis Indian stance, Natarajan explained how the Chinese gained a strategic control over global industry as they built large domestic coke-making capacity to support their growing steel industry. While in 2000, they could produce only 100 mil-lion tonnes of coke that fell short of their domestic demand by 11 million tonnes, the situation changed at a startling pace. The phenomenal expansion of coke-making capacity in China registered a 250 per cent rise by 2005-06 to close the demand-supply gap and then eventually overtake the demand. The plants then started exporting the surplus, so much so that they began dictating the world benchmark price in coke. The manner in which the coke industry in China grew at a higher pace than its steel industry itself and built surplus capacity to control the world industry, speaks of a well executed strategy. “Hard work done with a longer perspective, something which is being done in China and not in India,” says Natarajan.

In 2008-09, China produced 376 million tonnes of coke which was in excess of its own requirement of about 330 million tonnes to feed its burgeoning steel capacity. China exported the surplus production of nearly 40 million tonnes that took a lion’s share of about 65 per cent of global traded volume, points out Natarajan. With this move, the Chinese virtually ruled the global coke trade and were ready to manipulate the price of a key commodity that accounts for nearly 70 per cent of the cost of making pig iron, which is the first step towards steel making. This gave their own pig iron plants an unparallel advantage over the Indian pig iron manufacturers, who were fully dependent on the Chinese for coke supply. So, when the Chinese increased their export duty from 15 per cent to 40 per cent in 2008, the Indian pig iron producers suffered heavily with the huge rise in their coke input cost which their Chinese counterparts did not have to bear! [PAGE BREAK]

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Then came the second blow when the Chinese government led drives to cut down their coking coal and coke production in the garb of environmental clean-up and capacity rationalization, as well as consolidation. This also helps China conserve their scarce resource. So the presently small volume of Indian import is also going to dry up.

Steel-making, a priority sector in Indian economy, has to rely on domestic coke industry for this strategic raw material. With India poised to touch 200 million mark in steel by 2019-20, it will require huge quantity of coke to feed. While the integrated steel plants have their own facility, others have to depend on the merchant coke plants for their raw material. Natarajan further explains that the current annual crude steel production of about 53 million tonnes requires about 34 million tonnes of coke of which only 20 million tonnes was locally available last year, leaving the market in a huge deficit that was filled up by imports. This gap presents a large opportunity to aspiring domestic plants. However, they have to secure their coking coal linkage, given that India does not have sufficient resources of good quality prime coking coal.

While outlining his ambitious growth plans and present strategic moves, Natarajan explained how he has painstakingly worked on his target. Ennore Coke has a 130,000 tpa capacity coke and power generation plant in Haldia, W. Bengal and another 80,000 tpa capacity coke plant in Nergundi, Orissa through its 100 per cent sub-sidiary Wellman Coke. While the promoter company Haldia Coke and Chemicals holds a 60.86 per cent share of paid-up capital in Ennore Coke, the rest was picked up by an India-focussed private equity fund, Gaja Capital Partners for a sum of Rs. 1.25 billion. The freshly infused fund will be utilized by Ennore Coke to fuel its growth plans in mining and coke-making. Haldia Coke and Chemicals, has already acquired two coking coal mines in the USA, one in Arkansas and the other in West Virginia, for a total sum of US$ 20 million. They have a combined production capacity of 423,000 tpa and the extractable reserves stand at 25 million tonnes.

While Natarajan has made plans to takeover and grow laterally, he has also executed a sound strategy of capacity augmentation through tie-ups for conversion of coking coal to coke. The model works on unique link-ups wherein he arranges for an economic volume or shipload of good quality coking coal import and distributes this key raw material to the ‘conversion partners’ as per their requirement. On their own, importing small volumes of coking coal proves extremely uneconomical while a full shipload will often block huge funds in inventory holding, expose the coke-maker to risk of price fluctuation in this volatile coke market as well as quality degradation during long storage. Thus, by ensuring the quality and consistency in supplied input, he can obtain a good quality output since the coke-making process is highly input-driven. In turn, the consumers appreciate the reliable supply from Ennore Coke. [PAGE BREAK]

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With these smart business moves, Ennore Coke has already fortified its prime position in the industry and is a ‘clean’ producer too, as Natarajan proudly says that Ennore’s Haldia plant do not emit any smoke from its chimney which virtually stands just as a part of the plant structure. The Haldia plant design ensures no accident and is eligible for carbon credit too.

He reckons that the Indian coke-making capacity should also go up as it happened in China. The per capita steel consumption in India has a long way to go and the huge urban-rural gap in consumption spells further opportunity for growth of steel industry.

Ennore Coke has also brought in stamp-charging technology to its own plants as well as to their conversion partners, to make use of inferior grades of coal by adding to their coking strength, while saving input cost. Such moves will help the company sustain and emerge as a stronger entity. Natarajan deftly explained how the Chinese consumers drive the market haywire by stepping in to buy 15-20 million tonnes at one go, from a tight market, which raises price all of a sudden. Thus, on a business platform, he feels that it is crucial to control the price upswing in coking coal supply through ownership of mines as he has. Hedging against the currency fluctuation by adding exports to their portfolio will also go a long way. Ennore Coke has already exported to Pakistan and South Africa. It recently added USA to its list of destinations by shipping parcel of 35,000 tonnes.

With the western countries moving away from coke production owing to environmental reasons, Indian coke plants are presented with a unique opportunity which Ennore Coke is not going to let pass at any cost. He is actively taking help of Fuel Technologists from SAIL, Central Fuel Research Institute and such organizations to improve the quality parameters.
Once the coking coal linkage is ensured, Indian coke producers stand to benefit exceptionally from the domestic as well as global opportunity, given China’s stand on conservation of resources. However, this up-scaling of production also calls for readiness of the coke plants with modern technology so as to achieve environment friendliness. Natarajan is very optimistic about the future of his firm and the industry overall and that this key raw material industry will soon find its due status and recognition.