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Will lower imports in Sept'21 add to the plight of the Indian coal consumers?

India’s total coal imports have dropped by almost 6% to 14.37 million tonnes (mn t) in Sept’21 compared to 15.26 mn t in Aug’21. Although the m-o-m drop...

Coking
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9 Oct 2021, 09:31 IST
Will lower imports in Sept'21 add to the plight of the Indian coal consumers?

India's total coal imports have dropped by almost 6% to 14.37 million tonnes (mn t) in Sept'21 compared to 15.26 mn t in Aug'21. Although the m-o-m drop is not sharp, data maintained with SteelMint show there has been an almost steady downtrend in imports since Apr'21. Although the drop in May over April was nothing to write home about, the m-o-m decline in June was a sharp -21%. Even of the dip in July was negligible at -1.1%, August saw volumes dropping 12%. From May levels, the drop in September is almost 35%.
Thermal coal imports fell 2% m-o-m to 9.32 mn t in Sept'21 from 9.56 mn t in August while PCI and coking coal imports also saw a decline of over 10% m-o-m to 4.84 mn t in September against 5.40 mn t in August.

Why are India's coal imports falling?

If demand was volatile in June-July and has then showed a downtrend for the last couple of months, global coal prices started zooming up from this period onwards across thermal and coking. The skyrocketing prices are the single-most important factors behind the drop in India's coal imports.

SteelMint's data shows that the Indonesian 5800 GAR, which Indian power utilities prefer, propelled up an eyebrow-raising 103% from $82/t in Jan'21 to $167/t in Oct'21. The South African 5500 NAR skyrocketed 144% from $72/t to $176/t in the same period. The Australian 5500 NAR prices skidded up from $55/tonne levels in January to $125/t in early October, a 127% rise in nine months.

In coking coal, the Australian benchmark premium HCC climbed up a mind-boggling 247% since the beginning of CY'21, currently assessed at $427/t in Oct'21.

Indian coal consumers in a bind

More than 60% of India's power generation is coal-fired. Thus, for Indian downstream coal users, buying at these prices is becoming non-remunerative.

On the other hand, domestic supply from Coal India is stretched. At the end of Sept'21, coal inventory at Indian power plants declined 37% m-o-m to 8.08 million tonnes (mn t) from 12.76 mn t in Aug'21. Many of India's coal-fired plants have shut or have scaled down generation. Last heard, stocks were sufficient to last four days or less with some plants showing nil stocks. Some of the plants designed to run on imported coal, like Adani's Mundra plant, Tata Power's Mundra plant, Essar's Salaya, JSW Energy's Ratnagiri and many more have shut operations fully or partially for the time being.

The sudden post-Covid rise in power demand, as well as CIL's struggle to raise production and dispatch volumes during the delayed but heavy monsoon rains have added up to squeeze domestic supply. In Aug-Sept'21, India's power requirement was 124 billion units (BU) per month compared to 106 BU in the same months last year. The utilities are now facing a triple whammy of consumption surge, domestic supply tightness and surging imported prices.

India's Coal Secretary, Anil Jain, recently said Indian power plants are facing a shortage of 60,000-70,000 tonnes per day.

The non-power sector, including sponge iron, steel, cement and others too are feeling the heat of supply crunch with more than 90% of the domestic coal diverted to the power utilities. Sponge iron units have not been able to lift domestic coal for the past two months while imported South African RB2, their preferred grade, is on fire. Steel mills are looking at raised coking coal costs in the new quarter and beyond.

Why are coal prices rising?

With the pandemic showing signs of receding, economies across the globe are picking up, including India and China. But China is facing a shortage of coal despite producing around 50% of the world's coal, leading it to scoop up from ex-Australia sources, fuelling the price rally in the process.

Why is China facing coal shortage?

With China's ban on coals from Australian, its largest supplier, in Oct'20, it turned to other origins like Indonesia and South Africa, Russia, Mozambique, scooping up in huge volumes.
n China is facing a domestic coal shortage due to increased safety inspections at its mines. Domestic production has been curtailed, driving it to procure from outside. Utilities, asked to increase imported coal procurement as part of winter restocking, are in a rush to procure.

Indonesia, the largest thermal coal supplier globally, is facing production issues due to Covid and rains, leading to supply tightness for China.

Outlook

India is looking at a domestic energy crisis for several reasons. One is the rising power demand, aggravated by the onset of the festive season. Secondly, domestic coal supply tightness due to delayed monsoon and CIL's production and dispatch struggles. Thirdly, if the power sector is unable to meet the rising consumer demand, the non-power sector will have to curtail production, which may reduce coal usage and imports too. But coal prices are not likely to cool down soon since China's coal crisis is not likely to end soon.

Russia recently said it would supply natural gas to Europe, which triggered a $30/t slide in thermal coal prices in morning trade today but these bounced back. When prices are volatile, traders and buyers become unsure in taking positions.

Coal importers are thus looking at some amount of uncertainty.

d-o-d changes indicated against 30 Sept'21. W-o-w changes indicated blank due to holidays

 

9 Oct 2021, 09:31 IST

 

 

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