Coal India seeks to sidestep freight rate volatility

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

30 Nov 2009

Coal India Ltd (CIL), the Rs 45,796-crore government company, has started talks with global shipping lines and major domestic and foreign ports in order to escape freight rate volatility while bringing coal from foreign mines that it is trying to take control of. CIL chairman Partha S Bhattacharyya told FE that while CIL’s primary objective is to bridge the demand- supply gap by pushing foreign coal into the Indian market, it has to ensure that the market doesn’t fall prey to the global coal and freight market’s volatility.
According to the estimates of Richard Bay, a global benchmark for coal prices, thermal coal prices fell 58% at $60 per tonne during the last 12 months. The Baltic index showed that freight rates were down 83% at the current $18,500 per day from its peak in June. This shows the extent of volatility that the global coal and freight market faces, and CIL needs to take control of this.
“We will strike deals so that we can produce coal at costs, comparable with the prices of domestic coal. The Indian coal market, unlike the global coal market, is not exposed to price volatility and once in two- three years there is a revision of price,” Bhattacharyya said.
He added that besides arrangements with miners, there is the issue of freight, which will require the same sort of arrangement. Freight will also be a component of the cost of coal and so freight volatility also needs to be escaped. “CIL has started talks with shipping lines like the Shipping Corporation of India and also with foreign and domestic ports to fix long-term rates,” Bhattacharyya said. He however, did not want to name the ports with which the company has started holding talks.
CIL officials told FE that while companies from the US, Australia, South Africa and Indonesia will start making presentations from December, clinching a deal with mine owners in the US will strategically help CIL to secure coal at Indian rates. The US is not as big an exporter of coal as Australia and the country’s coal mining, despite huge reserves, has not grown because there was no growth in demand. Officials said
CIL is more inclined to secure long-term mining contracts in foreign blocks than acquiring coal blocks. Entering into such contracts is more feasible in the US than any other country and this mode seems to be ideal to escape price volatility.

Source: Financial Express