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Steel mills in India pay 4 times more for coal on low supply

A coal shortage in India has led to soaring costs for steel producers as they compete with other industrial consumers for supply.

Mills are paying more than four times the normal costs for procuring coal from e-auctions and from mines, according to V.R. Sharma, managing director at Jindal Steel & Power Ltd. Still, there has been no impact on production at most primary steel producers yet as they have adequate supplies and are unlikely to curtail output, he said.

India, which relies on coal for about 70% of electricity generation, is grappling with a shortage after a jump in demand, a squeeze on domestic mine output and surging prices of seaborne supply. The country has been prioritizing the power sector, spurring concerns that other industries may face a shortfall.

“Integrated secondary steel mills or stand alone sponge iron producers may have to face production cuts as they rely on non-coking coal to run operations,” said Jayanta Roy, senior vice president at ICRA Ltd.

“Aluminum producers too are going to face a problem of availability and price of coal for their captive power plants and, depending on their supply tie-ups or contracts for international purchases, may have to face shortages as the government’s priority remains to the power sector,” he said.

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However, with the end of the monsoon season and efforts of Coal India Ltd. to boost production, supplies should improve going forward, Jindal Steel’s Sharma said.

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