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CIL, Indonesian coal price gap halves to 15%

The difference between landed cost of Indonesian coal and a similar category of coal supplied by Coal India LtdBSE -0.88 % (CIL) has reduced from 30-40% a year ago to about 15-18% for low quality coal following a drop in global prices.

When it comes to premium quality, CILBSE -0.88 % coal is costlier. However, if the actual quality of coal supplied to power plants is considered, all categories of CIL coal are costlier.

"For certain grades, CIL's coal is in fact turning out to be costlier than its equivalent imported version because of grade slippage and stones that come mixed with the coal," said a senior power official from a West Bengal company who did not wish to be named. A senior NTPCBSE -0.10 % official had a similar take. He said, "The amount of stone that comes with coal from CIL makes it really difficult for us to find grounds to dispose off these boulders."
Washed and crushed thermal coal, ready to be transported from the Indonesian mines is now cheaper than the base price of raw coal produced by Coal India for the same grade. The only difference in price is the transport cost from Indonesian mines to power plants in India, which may be wiped out if CIL raises prices again.

CIL chairman S Narsing Rao said, "I am really not aware of the international coal prices. However, 48% of CIL's coal production costs include labour costs. Legacy mines also add to the costs. Foreign mines are much more mechanized than CIL and they have the right number of employees which is less than CIL's." He agreed that stones were supplied with coal sometimes to power plants that created quality issues and reduced the GCV of the coal. GCV is a measure of the energy released by burning a kilogram of coal and is considered globally a unit of energy content of coal

Benefits of higher soya export to Iran

Iran’s worldwide imports of soyameal are close to 2.2 million tonnes annually.

This year, Iran will procure higher supplies of Indian soyameal — estimated at 0.8 million tonnes by March 2013 and 0.75 million tonnes during the leaner season of April-September 2013.

This is despite the crop of beans in Brazil, Argentina and the US that will be harvested and crushed from April onwards.

Notwithstanding that South American prices are about 10-15 per cent cheaper now and future charts are displaying signs of further weakness in values in the coming months, India geographically enjoys an inherent freight advantage with the West Asian countries vis-a-vis South America.

The indicators are already flashing — during April 2012-January 2013, exports to Iran touched 5,40,000 tonnes, against 2,30,000 tonnes in 2011-12.

For February-March 2013, an export of 3,00,000 tonnes (or 1,50,000 tonnes/month) is expected. The trend may continue, as Iran’s public and private sectors intend to aggregate more than adequate stocks for their food-related items to meet any exigencies.

Prior to February 6, 2013, India’s crude import from Iran was a mix of payments in hard currency and rupees in the ratio of 55:45.

Thereafter, US’ stringent enforcement of sanctions mandated international trade with Iran in local currencies — with zero component of dollars or euros, except on humanitarian grounds for food and medicinal purposes.

Since dollars or euros may not be adequately available when Iran’s crude exports are squeezed, import of foodgrains, meal and edible oil cannot easily be transacted from the American hemisphere, unless the goods are bartered.

The scarcity of foreign exchange with Iran can be inferred from the weakening of its local currency.

The Indo-Iran bilateral rupee payment arrangement, which now provides for 100 per cent rupee trade, will ensure substantial diversion of trade to India with an added pull for soyameal.

China and Iran, too, have a local currency arrangement, but China holds a surplus in trade with Iran, whereas Iran has a $12-billion surplus with India. Iranian glut of rupee funds is already banked with India’s UCO Bank.

Iran has to cover its demand of meal for its livestock and has few sourcing options other than India. Even basmati rice exporters are enlarging their export basket by pushing soyameal exports.

The advantage here is that Indian sellers and Iranian buyers of basmati rice are familiar with the procedural pattern of Indo-Iran trade and payment mechanism due to four years’ experience in trading the “1121” variety of basmati rice.

Tentatively, shipments of an “additional” one million tonnes to Iran are not ruled out for the April-September 2013 period.

Decline in soyameal shipments to Japan and Vietnam this year may, therefore, be compensated.

Exports of about 4 million tonnes (1.5 million tonnes to Iran and 2.5 million tonnes to other destinations) are achievable in 2013-14, out of total production of about 8 million tonnes. Farmers and producers who held back beans or accumulated inventory of meal in anticipation of better realisation due to Iranian purchases may also have to contend with the falling trend in world prices, which will be a limiting or negative factor.

World soyabean prices are estimated to fall by 20- 25 per cent in the next two quarters. Trading profits are thus a challenge and depend upon corporate ingenuity to manage local procurement efficiently.

MNCs, who may have otherwise sourced soyameal for Iran from South America in April-September, have also diverted their business through Indian intermediaries or sister companies based in India. More action in this segment can be expected.

Exports of value added non-traditional items such as soyameal, which is undertaken by private players from open market, will be welcomed by the Indian Government. More crushing of beans will yield more oil, lowering prices of edible oil and bringing down imports.

The soyabean industry, which has flourished in Madhya Pradesh, has been insulated from any direct or indirect policy intervention by the Centre, unlike wheat, rice, maize, pulses, edible oil.

There has not been a ban or restriction on exports, even in the event of prices of beans showing an abnormal rise, as was the case last year. Madhya Pradesh needs to incentivise production of oilseeds or pulses over wheat.

There were some teething problems in 2012 under the Indo-Iran arrangement, causing inordinate delay in disbursement of funds by UCO Bank.

These bottlenecks have now been fixed and authorisation of “debit advice” to UCO Bank for effecting payment is received from Iranian counterparts within 7-10 days, subject to the documentation being compliant with terms of letter of credit.

Moreover, Indian exporters/traders have undertaken additional precautions of insisting on substantial advance payment at the time of contract and the balance upon completion of the shipment.

Therefore, soyameal trade with Iran is an opportunity waiting to be exploited.
Cement sales hit on continuing weak demand

Cement companies are pinning their hopes on the sops offered in the Budget to the real estate and infrastructure sector to boost demand.

Companies hope Budget sops will boost demand

Mumbai, March 6:

Cement sales remained lacklustre in the first two months of this year, with no major recovery in demand from the infrastructure and realty sectors.

Shailendra Choksi, Director, JK Lakshmi Cement, said there was a minor recovery in sales during the first week of January, but that did not sustain and fell in February, due to dull demand from the infrastructure sector.

Cement companies are pinning their hopes on the sops offered in the Budget to the real estate and infrastructure sector to boost demand, he said. Increase in deductions for home loans up to Rs 25 lakh and interest subventions of one per cent are set to make home loans more attractive. Besides, allocation of Rs 2,000 crore for the urban housing fund to provide affordable low cost housing, it is also expected to boost cement demand in rural areas.
Decision likely today on more wheat exports

The Cabinet Committee on Economic Affairs (CCEA) on Thursday will decide on allowing more wheat exports from Food Corporation of India (FCI) godowns, said Agriculture Minister Sharad Pawar.

The Government has been contemplating allowing additional wheat exports of about five million tonnes (mt) as pressure builds up to clear stocks and make storage space for the new crop to be harvested from early April.

So far, the Government has allowed exports of 4.5 mt from the Central pool stocks, of which over two mt have been shipped out by the State-owned entities such as PEC, MMTC and STC.

“The proposal on wheat export is on the agenda of tomorrow’s meeting of the CCEA. Let’s see what will happen,” Pawar told reporters on the sidelines of the Kharif 2013 conference.
Sugar sector needs holistic policy

Sugar decontrol is on the cards. The least that is likely to happen is the abolition of ‘levy system’ (compulsory procurement of sugar at below-market prices) and withdrawal of the free-sale quotas.

In other words, sugar mills will not be required to surrender a part of the production to the Government and will be free to sell their entire production according to their own business plan.

To meet the requirement for the public distribution system, the Government will buy sugar from the open market; and the difference between such open market purchase price and PDS supply price will be absorbed as subsidy.

To meet the subsidy burden, additional revenue is proposed to be raised through a hike in excise duty on manufacture of sugar.

Decontrol does not just mean removal of some restrictions. In spirit, it means much more. There are a few more issues relating to the sugar sector that deserve close attention.

There is demand in some quarters that the statutory minimum price for cane should be abolished and free market pricing must be introduced. This damaging suggestion deserves to be rejected right away.

The statutory price is a critical support system for cane growers who should not be subject to the unintended oppression of a free-market system.

Iron ore market seems to be silent as the finished market settles

After rapid debacle over the past one week by 3% iron ore market maintained silence over the last couple of days. Market remained in dilemma with offers and bids flying in wilderness. Diluted GDP projection of 7.5% from the earlier target of 8% affected the sentiments.

However some stability in finished market as rebar futures closing at CNY 3939 from CNY 3905 gave as streak of hope for the coming days. Undying confidence in Chinese government growth objectives, expectations for steel mill restocking, improved seasonality and a pause in seaborne supply growth have kept the hopes afloat. Coming week would be crucial in ascertaining the trend as the dust in finished steel seems to have settled and turnaround in offing.

TATA Steel IJmuiden gets first cargo of iron ore from Northland Resources

TATA Steel has taken delivery of the first shipment of iron ore from a new iron ore supplier, Northland Resources.

MV Star Norita arrived at TATA Steel's IJmuiden terminal in the Netherlands on 2 March loaded with 55,000 tonnes of high-grade iron ore pellet feed.

The ore comes from Northland Resources' new mine, Kaunisvaara, in Sweden and was shipped via the Norwegian port of Narvik. It is thought Kaunisvaara could be the first entirely greenfield iron ore mine to start up in Europe for several decades.

Kees Gerretse, Tata Steel's Group Procurement Director said "New sources of iron ore do not come to market every day, especially in Europe. We are delighted that Northland Resources has successfully shipped its first cargo from its new mine and look forward to receiving further shipments as our relationship grows under our long-term supply contract."

At a ceremony to mark the shipment's arrival, IJmuiden steel plant Hub Director Dook van den Boer said: "We are making great strides in improving our operational and environmental efficiency at IJmuiden. The high iron content of Northland Resources ore should contribute further to this in terms of energy consumption, and there will be logistical advantages because this new source is so close by."

Slight uptick seen in global freight rates this year

Global container freight rates have stabilised recently, according to shipping consultant Drewry in its Global Freight Rate Index.

The Drewry index, a weighted average across all main trades excluding intra-Asia, consolidated the gains of December with a two per cent increase in January to $ 2,513 per TEU. This broughthe index up to its highest level since August 2012 and just four per cent off last

year’s peak month of June.

The Global Freight Rate Index is published in Drewry’s Container Freight Rate Insight, along with freight rates covering over 600 different trade routes and several other aggregated indexes.

Trades contributing to the index’s rise were the transpacific eastbound; Middle East exports to both Europe and North America and imports from Asia as well as South American, African and Oceania northbound exports.

Routes experiencing falling rates in January included the westbound transpacific backhaul trade, South Asian exports to Europe and imports from Asia, eastbound transatlantic and Asian imports to South America and Africa.

A number of other trades remained stable, including both legs of the Asia-Europe trade; the transatlantic westbound; Asian imports into Oceania and the regional trade of intra-Europe.

Despite another year of excess capacity growth, Drewry expects global freight rates to rise through 2013. This is because the majority of new ship deployments are destined for already overburdened east-west trades where pricing is expected to come under pressure.

While carriers also remain challenged by capacity growth on north-south trades, the stronger demand growth will help buoy rates, lifting average global container freight pricing.

Drewry is, therefore, forecasting a modest increase of four per cent in average global freight rates in 2013, with variations between different routes. Freight rate volatility will continue as carriers grapple with increasing overcapacity and resort to their preferred short-term measures of sailing suspensions and frequent general rate increases, it said.

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