India’s end-user industries are facing a persistent coal crunch in the domestic market as their supplies are curtailed by state run-miner-Coal India Ltd (CIL) which has prioritized supplies to thermal power plants.
The non-power sector, comprising sponge iron, cement, captive power plants, steel and other associated industries, were dispatched 25.1 million tonne (mnt) of coal in the first quarter of FY2022-23 (April-June, 2022), down 26% y-o-y against 33.97 mnt in the corresponding period of FY2021-22.
In the same period, coal supply to the power sector increased 21% y-o-y to 152.49 mnt.
CIL sector-wise coal dispatch
Source: Coal Ministry | Quantity in mnt
The non-power sector is scrambling for supplies since the last fiscal, led by an unprecedented rise in power demand post lifting of Covid-led restrictions. This resulted in a steep fall in coal inventory at the thermal power plants. Since then, these plants are in a recovery mode, requiring higher supply.
The situation got worse due to intense heatwaves in summer time this year. As a result, supplies to the non-power sector dropped to a 2-year low of 7.78 mnt in April 2022. Slight improvement was recorded in May as the burden on power plants was reduced by an increased generation from renewables.
However, a rebound in power demand during June 2022 again compelled CIL to lower its dispatches for the non-power sector by 32% y-o-y to 7.89 mnt.
Spurt in coal imports
The supply cut for the non-power sector has been enforced in direct/indirect form by the CIL subsidiaries.
Mahanadi Coalfields (MCL), the largest subsidiary, informed that coal allotment to the non-power sector under fuel supply agreements (FSAs) would remain at trigger level for July 2022.
This means that consumers availing this facility would receive coal at minimum commitment against their monthly scheduled quantity–a provision that has been kept in place since February this year.
Apart from FSAs, the subsidiaries are offering minimal volume on sale via spot auctions, which has been a major source of procurement for these non-power industries.
To mitigate the supply gap, an aggressive procurement was seen via imports as buyers made a final push to meet their restocking needs before the monsoons. This was also supported by correction in seaborne prices.
As per data compiled by CoalMint, the country’s thermal coal imports touched record levels of 20.94 mnt in June 2022, rising 63% y-o-y from 12.83 mnt in June 2021.
Sluggish industrial activity during the rainy season is likely to pull down coal demand in the near term. Nevertheless, post-monsoon, the buyers would remain competitive in the import market in case there is no major improvement in domestic coal supplies.
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