I have known Tony Botelho since he was sales manager at Goa Carbon in India. So it was a good chance to catch up with him when he came to Beijing this week. I asked him a few questions regarding the Indian market and his views on China.
Welcome to China, Tony. How often do you come here?
I have been coming to China once a year since 2004, excepting 2005, although that is the year I began doing business with Chinese companies.
Tell me a bit about your background. Most people know you as the man behind Goa Petcoke Consultancy, and before that you were with Goa Carbon. What is the Tony Botelho story when it comes to this industry ?
I joined Goa Carbon in 1989, with previous stints in two companies whose line of business was exports. The Indian petcoke business was tightly controlled then – freight equalization for GPC deliveries, imports not permitted, calciners were allocated GPC by the Indian Oil Corporation, and generally sold the calcined product against advance payments !
It all changed with the freeing of the Indian economy. Goa Carbon was disadvantaged because of its location on the West Coast of India, and I believe my previous work experience in exports helped turn give it a fresh lease of life as India’s first exporters of calcined coke, well even before Rain Calcining started and came on the scene. It helped that the management of Goa Carbon gave me a free hand.
How has the transition been, going from Goa Carbon to being your own boss?
My experience at Goa Carbon was an important part of my career. Having achieved my goals there, I felt ready to embark on newer challenges. It’s been an interesting experience representing companies from different parts of the world for different raw materials for smelters. And the consultancy work for calciner projects with a handful of former colleagues from Goa Carbon. Being my own boss has its own advantages and I am enjoying that, even if the wife thinks I work harder and longer hours now!
How has the current economic crisis affected India? Are the smelters there cutting back like elsewhere?
India has not been exposed as badly as the West to the “toxic” instruments and swaps. But the impact on the West has had its repercussions in India.
Again, Indian smelters have not been affected as badly as some of those in China and the West. There has been a slow down of the new smelter projects, and the two Soderberg technology smelters acquired by Vedanta have curtailed or stopped metal production whilst still making profits from sale of electricity from their power plants.
How have the calcining companies reacted to the current market?
In my opinion with the exception of the Maniyar Goup, most of the Indian calciners did not react sensibly and in time to the fast-unraveling circumstances in China, and are paying the price now – with the exception of NALCO the other Indian smelters are buying sizable quantities of cheaper Chinese calcined cokes.
Indian companies were big in the news in recent years, with Rain taking CII and Hindalco taking Novellis. What was the Indian view of these flourishes? What is the view now?
The prize acquisitions were made when the Indian economy was in a buoyant mood, with possibly a dash of “me too” posturing. Perhaps they made sense then with Rain-CII becoming the largest calciner company in the world, and Hindalco becoming one of the world’s largest integrated aluminum companies.
Right now with the possibility of LME prices recovering looking grim, the rupee depreciating against the dollar and the loans taken to finance the acquisitions becoming costlier, the companies’ net worth has been dragged down, perhaps Hindalco more so than Rain-CII.
I believe the decline in aluminium and coke prices led to the companies getting affected by a negative price lag effect, largely due to the time gap between the purchase of raw materials and the sale of the finished products.
Turning to China, there is a strong tie between the two markets. How does India look on the Chinese coke industry?
Trade between the two countries rose in 2008-9 by almost 30 % to over $51 billion. Both the countries, which account for over a third of the world’s population, have been discussing bilateral trade and economic relations lately in the context of the global slowdown. However India is concerned that some Chinese imports into India, calcined coke included, could be instances of “dumped” goods.
For many years the port-based Indian calciners were dependent on spot purchases of Chinese GPCs, until the aluminium industry in China took off at a gallop and supplies almost dried up. Now not only is plenty of Chinese GPC available to Indian calciners, but there’s plenty of cheaper Chinese calcined coke available to Indian smelters.
Indian calciners and smelters therefore have conflicting perspectives. The calciners look upon the Chinese calcined coke imports by Indian smelters as a threat to their existence. The smelters welcome the lower Chinese coke prices which help them reduce costs.
There seems to be a lot of interest in Chinese calcined coke from Indian buyers recently. Isn’t that like taking coals to Newcastle ?
From November 2008 Chinese calcined cokes began being imported into India, as they worked out cheaper than purchases from Indian calciners. This situation came around due to the closure of metal production capacity by smelters in China.
The Indian Oil Corporation takes time to reduce its GPC prices, which does not enable local calciners to compete with Chinese calcined coke delivered prices. In November 2008, IOC sold GPC at approximately $ 340/t, whereas delivered prices of Chinese calcined coke to India were around $ 380. Although the IOC did reduce GPC prices since, calcined coke ex-China prices also dropped. A reduction in Indian GPC prices should come by 31 March.
What’s your view of the current Chinese market? What’s your forecast for coke prices through the rest of this year ?
I believe that China as the world’s largest consumer of metals will hold the key to commodities prices. Demand may be weak right now, but the stimulus spending packages and de-stocking should eventually reverse the trend. I understand China would be spending almost $ 600 billion in metal-intensive projects like railways and housing.
On the other hand, although GPC prices in China are increasing, a decreasing trend could be seen again during 2Q09, as new cokers come on stream, which is likely to depress prices.
In any case coke prices are unlikely to reach October 2008 levels so soon again.