October 23, 2011

Coal shortfall hits steel production in West Bengal

IANS, Oct 18, 2011, 02.48pm IST

KOLKATA: Production in the secondary steel sector of West Bengal has fallen as heavy rains have prevented the state-run Coal India Limited (CIL) from supplying enough of the vital raw material.

The sector expects to be further hit because there will be no e-auction of coal for it this month. It is on hold to divert the raw material to power stations. These auctions are a 'lifeline' to the secondary steel sector.

Coal supply to power and steel plants are badly affected as the coal giant was unable to meet its target in the first half of the current fiscal, the output falling short by around 20 million tonnes (MT) due to adverse weather conditions.

Against the target of 196 MT, largely due to heavy rains the Maharatna company could produce only about 176 MT of coal from April to September.

Steelmakers said the coal crisis for the steel sector will aggravate further with CIL's recent decision to offer four million tonnes of additional coal by e-auction to the power sector in October.

"Plants in West Bengal are on the verge of closing down due to acute coal shortage," Kolkata-based Shyam Steel director Lalit Beriwala told IANS. "We have been particularly facing severe shortage of coal for the last six months because of short supply from the CIL."

Beriwala said the state was currently producing at half its installed capacity.

"No new coal linkage has been given for the last four years in the state," he said.

He said prices of coal distributed through e-auction were very high; moreover, no trader should be allowed in the e-auction because they tend to jack up prices.

The coal distribution policy in the country has to be changed, he said.

On CIL's decision to put on hold the e-auction for the month of October, Beriwala said it will aggravate the coal crisis for steel producers as they purchased a bulk of coal through this medium.

"Now 70 percent of the steel plants will be closed down in West Bengal. I do not know what will be the fate of industry in the state if the government does not take any action," he added.

Another major steelmaker in the state, Jai Balaji Group, said it had resorted to more coal import from abroad.

"For the last few months, we have been facing severe shortage of domestic coal supplied by CIL and its subsidiaries," Jai Balaji Group chairman and managing director Aditya Jajodia said.

"Due to that our coal import has been increased by 25 percent. As a result cost of steel production has soared by about 40 percent," he added.

Jajodia said CIL's decision on e-auction of coal was a "negative development". "It will hurt steel sector as a whole," he added.

Santosh Bajaj of the Merchants' Chamber of Commerce ( MCC) said the steel sector in the state was facing supply as well as demand constraints.

"Bengal steel plants are facing a raw materials crisis, more in the recent times, because of the short supply in coal. Demand for steel is low because of low spending on infrastructure. If demand was high then the base price would have been higher. It would have ensured good profit for steel makers," Bajaj said.

Moreover, according to him, steel producers are also facing a working capital crisis as interest rates are too high.

"Financially they are in a pathetic condition," he added.

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