*Domestic supply fails to match demand variability
*CIL to raise production to 1 billion tonne by 2025
*Output from commercial mines expected to pick up by 2024-25
*Sponge iron sector open to diversifying import sources
India’s imports of coal are expected to remain high as global uncertainty rages over high prices, energy security issues, geopolitical fissures as well as a high level of demand variability in India.
Therefore, despite the government’s stated objective of cutting down imports, crisis management amid domestic supply uncertainty is giving a fillip to imports.
This was the message from experts conveyed at SteelMint’s India Coal Outlook Conference held, in conjunction with the 5th Indian Iron ore & Pellet Summit, on 3-4 August, 2022 in New Delhi.
The panel comprised R.B. Prasad, Director Technical (Operations), Central Coalfields Ltd. (CCL); Thomas M. Cherian, MD, Essel Mining; Rahul Mittal, President of Sponge Iron Manufacturers Association of India (SIMA) and MD, Janki Corp; Capt. P. Kumar, Head of Coal Sourcing, Sembcorp Energy India Ltd, and A. Nanavey, Head – Minerals Trading Business, Tata International Limited.
Supply issues
In April-May there was shortage of supply of coal in the domestic market and so the government had to fall back on imports for power plants to blend with domestic coal, although coal was available at CIL pitheads. However, even if coal import costs are high it is unlikely that it will have an impact on power tariff, said Prasad.
While this is true for the government-owned power plants, the costs of coal for private players, especially metals producers such as aluminium, could go up significantly. A pointer in this regard is the astronomical premiums fetched by CIL subsidiaries at latest auctions, observed T.M Cherian.
For the core sectors such as power, steel, cement and even aluminium, managing the per unit cost be will be a key priority in the coming couple of quarters, said A. Navaney.
Imported coal has comprised a maximum of 20% of the blend for India’s energy requirement. In view of the per unit generation cost of power, the immediate impact may be a rise in prices by 15-20%. However, the need is to assess whether this impact is borne by the consumers or gets distributed across the value chain. India has many sorts of power purchase agreements (PPAs): while some are on fixed price supply basis, others are invoice-based pass through.
Government generation companies are able to pass on the entire cost to discoms, whereas the discoms are not able to pass on the cost to end-consumers. So, the impact on consumers can be both direct and indirect, said Capt. Kumar.
As far as supply is concerned, CIL has recorded a rise in dispatches even as the captive plants have reported a surge in dispatches. But, on the supply front, industries are hedging their risks by importing (apart from technical reasons) to ensure certainty of delivery and scale.
Domestic production is inching up but is it enough to meet demand? In all probability, reliance on imports will be necessary in the coming couple of quarters. It should be noted that y-o-y growth of CIL production in FY’22 has been 26% and growth in dispatches has been 13%. The spike in demand has been considerable and therefore, despite best efforts, supply has been largely unable to keep pace with the variability in demand.
Import scenario
Hence the call to raise imports was basically crisis management and imports are likely to be on the higher side in the coming couple of quarters because the demand load keeps changing frequently. However, imports are likely to come down if prices stay too high for too long.
CIL’s import tender for 11 mnt went to an Indonesian supplier and the first lot is for 6 mnt. The tender contains the condition that the quantity can be reduced to even zero in the absence of demand. Also, to reduce load on ports and associated infrastructure, CIL is importing 3 mnt each through eastern and western ports.
Production picture
CIL’s dispatch target in FY’23 is 700 million tonnes (mnt). This is sought to be achieved through concerted efforts by the government, CIL and the Indian Railways, which is looking to upgrade infrastructure. The new Tori-Shivpur line has been commissioned in Jharkhand. Last year some 30-35 rakes were supplied through that line daily, while the capacity is 50 rakes/day.
Moreover, in SECL, CCL and MCL a lot of rail projects are being carried out with CIL funds due to shortage of funds with the Railways. CIL’s production target of 1 billion tonne (bnt) by 2025 is sought to be achieved by increasing production from existing mines. Capacity enhancements from 100 such mines are in the pipeline. Every month CIL is taking up five-six mines for the purpose of study, while many new projects are on the anvil mainly in CCL but also in other subsidiaries through the MDO route. By next year production is expected to rise to 850 mnt and then to 1 bnt by 2025.
Commercial blocks
The Coal Minister has set a target of 130 mnt of production by the captive players this fiscal. Around 47 commercial coal blocks have been auctioned. In the current fiscal, production is expected to increase marginally by around 2 mnt but by 2024. It is likely that production will start in at least four-five blocks.
So from FY’25 onwards increased production from these blocks can be expected. The obstacles to bringing these blocks into operation are two-fold: a) land acquisition due to social-political issues and b) forest clearances. In addition, infrastructure and evacuation issues are also pertinent when it comes to raising production.
Coal for DRI
Earlier the domestic DRI players used only South African and Indian coal. However, of late, producers are sourcing from Mozambique, low CSN Australian coal and a few players are also using Tanzanian coal. So, amid global hyperinflation and high global coal prices, producers are having to fix their strategies on an almost day-to-day basis because it is an uncertain terrain.
However, in the coming months, Russian coal will be used in a major way by the DRI industry after elementary trials. Already some producers have sourced around 500,000 t-1 mnt but trials are on as Russian coal has many varieties – high- and mid-vol as well as blended with PCI.
The sponge industry is highly dependent on imported coal due to high fixed carbon content (52-53% FC) but there has been a significant change in the buying pattern from 5300-5700 NAR coal to 4800 NAR material, primarily driven by price and value which is unlikely to change in a hurry.
Amidst unavailability of domestic coal and high global prices, the sponge iron industry is expected to push the boundary of experimentation and new import flows will emerge. But senior CIL officials assured that supplies to the non-regulated sector will increase after the monsoon.
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