"Expansion is progressing as scheduled"
(Interview of Mr. Arun Kumar Jagatramka, Managing Director, GNCL)
(Capital Market, July 4-17, 2005)

After hitting historic highs in early mid 2004 on buoyancy in steel prices in the domestic and international markets, metallurgical cokes price have subsequently slipped with the reduction in Chinese demand and entry of new players. To know the strategy of Gujarat NRE Coke, a leading met coke producer, to insulate profitability, Darshan Singh Bagga of Capital Market spoke to Arun Kumar Jagatramka, Managing Director, Gujarat NRE Coke.

Excerpts:

What is the domestic demand supply, export and import of metallurgical (met) coke since the past few years? What is your outlook?

-In the domestic market, the gap between demand and supply of met coke is presently around 3.5 million tonnes. This is expected to widen on implementation of various expansions/new projects in the steel industry. The shortfall is essentially met by imports. Considering the general growth seen in the economy, the demand for met coke is not expected to fall in the near future and the outlook appears bright. But the high prices seen early/mid 2004 are not expected.

New projects are adding metcoke capacities in India. Do you think this will lead to a glut in the domestic market, resulting in a substantial fall in the profitability of the industry? In this context, how do you plan to protect/enhance the margin and profitability of Gujarat NRE Coke?

-The demand-supply gap is quite huge and all the present expansion/new projects in India are expected to bridge this gap partially. Hence, the question of a glut in the market does not arise at all. However, the margin is not expected to be the same as witnessed in the past. The factors that will work to the advantage of the company are low operating cost, huge addition to the capacity, the price edge in coal procurement and freight due to old contracts and shipments.

There has been a drastic fall in metcoke prices in the quarter ending March 2005 over the corresponding previous quarter. But international coal/coke prices have increased in this period. Do you expect this disparity in met coke prices to continue?

-The difference is due to the abnormally high prices of coke in the past, which have since stabilized. Even at the current prices of coal and coke, the margin is comfortable.

Gujarat NRE Coke had a tie-up for coal at around US$ 65 per tonne for supplies up to March 2005. Has the sourcing agreement been renewed? To what extent will the requirement for expanded capacities be available from this source?

-We have shipments coming up to August 2005 under the old contracts, which would ensure our coal requirement for the fiscal ending September 2005. We have already tied up for next fiscal 40% of our projected requirement at competitive rates. The balance will be available from our own mines in Australia.

Are there any plans to set up waste heat recovery-based power plant in your metcoke unit? What is the current windmill capacity? What percentage of Gujarat NRE Coke's power requirements is met from these windmills?

-The capacity of wind power installed is 2.5 MV. This is sufficient to take care of the power requirement for our Khambalia and Bhachau plants in Gujarat. We are planning to add to the capacities in the current year for our requirement at our Dharwad plant in Karnataka. The details of the waste-heat recovery-based power plant are being finalised. We expect to set up a 30-MW power plant in Gujarat and a 20-MW power plant in Karnataka based on waste heat from coke-making.

Gujarat NRE Coke aims to raise capacity to 14.5 lakh tonnes, from 5.02 lakh tonnes in FY 2004. Is the expansion programme on track? What is the present capacity and utilisation?

-Our expansion programme is progressing as scheduled. The installed capacity as on March 2005 was 6.5 lakh tonnes. The present capacity utilisation is around 70%.

Do you meet the raw material requirement through imports? What was impact of the dollar movement on this?
-All our the raw materials requirement of coking coal is met through imports. The dollar movement has been very beneficial to the company.

You recently acquired a mine in Australia. What percentage of your (post expansion) coal / coke requirement will be met from this mine?

-The mine has the long-term potential to meet 100% of our current coal requirement.

What is the status of your investment in the Australia exploration company, Zinico Resources?

-We plan to invest $1.5 million, i.e. 30% of the $5 million project. It will be financed by internal accruals. We have made 20% of the payment for acquiring the 30% stake. The balance will be paid before 31 July 2005.