The maiden edition of the India Coal Outlook Conference, 2022, was organised with the objective of highlighting the pressing issue of constrained coal supply and demand volatility and how it affects consumers. During the course of the conference leading industry experts shone a light on changing global coking and thermal coal dynamics amid hyperinflation due to geopolitical turmoil and shifting trade flows. The event gathered under one roof 250+ participants from the industry eager to absorb the precious insights shared by experts.
Highlights from the conference:
Pricing Power for Indian Coal importers: Need for an Index?
(Panellists: S. Vishwanath, Executive Director, Coal Imports, SAIL; Puneet Jagatramka, Executive Vice-President, JSW Steel; Swapnil Patil, Director, Iron ore & Coking Coal, Vedanta; Amita Khurana, Group Chief, Raw Materials Procurement, Tata Steel; Prakash Thakur, Section Head, Coke/Coal Sourcing, AM/NS India)
*India is the leading coking coal importer in the world and the ratio of long-term contracts and spot trades for Indian steel mills is 80:20. While long-term contracts offer better visibility and consistency of grades, spot transactions offer flexibility as per mills’ production adjustments.
*India should follow the EU’s and China’s lead and try to evolve large stock points/terminals for stock and sales of met coal.
*Indian buyers can also seek to develop alternative pricing mechanisms such as rooting for a share of their total purchase to be based on quarterly term contracts such as Japan.
*Creating a centralised purchase agency for met coal in India based on China’s recent iron ore model may have legal nuances and may get stonewalled by the Competition Commission of India. What works well in China may not be ideal for India.
*Geopolitical tensions led to panic stockpiling but that doesn’t explain coking coal prices touching $670/t FOB Australia levels. The fundamental flaw with existing indexes is that they take only around 10% of the spot transactions in the 300 mnt/year global market as the sole yardstick for price discovery.
*A robust CFR India index should be developed which is more representative of market sentiments and reflect the true picture.
Price Volatility in Coking Coal: How Long Will it Persist?
(Panellists: Mat Wilson, Company Head, Coal Trading (Asia), Trafigura; Amit Agarwal, Consultant, McKinsey & Co.; Himanshu Bajaj, President, IMR Resources India Pvt Ltd.; Pankaj Jha, XCoal Energy & Resources)
*Australian coking coal supply to peak by 2026 and fall subsequently if new projects are not incentivised. Global met coal market may reach 370 mnt by 2026 from 300 mnt at present, primarily due to growth in Australia, but may fall to 340 mnt by 2031.
*Steel decarbonisation measures will reshape coking coal dynamics and project financing as many global miners seek to curb their coal exposure –largely thermal but also met coal. The emissions trading scheme to be introduced in Australia in 2023 will influence prices and impact Indian buyers.
*CO2 prices will impact underground met coal production more than open pit mines. Scope 1&2 emissions for opencast mines are typically 100-150 kg per tonne of coal produced compared to 350 kg per tonne for UG mines.
*China has increased imports from North America and Russia even as India’s share of total Australian exports stands at over 35%.
*Coking coal prices fell sharply from over $650/t FOB Australia with increased supplies post the wet season in Australia after March, new mines coming onstream such as Moranbah and global hyperinflation impacting steel demand.
*Rising coal mining royalties in Australia may impact new mining projects, although existing operations will remain unscathed.
*One key reason for volatility is lack of spot trades. When China was buying Australian coal around 25 spot deals happened in a month, which fell to lower than 10 in some months after the informal ban. Australian miners won’t want to sell all their cargoes index-linked as they want the spot pricing points for maintaining legitimacy of the index.
*India’s central bank is seeking to facilitate trade with Russia post sanctions through new payment mechanisms. More Russian cargoes reaching Chinese and Indian shores will keep Australian coal prices in check.
How Will Global Metallurgical Coke Market Pan Out in the Near-term?
(Panellists: Dipak Agarwalla, Director, Saurashtra Fuels Pvt Ltd; Abhijt Parab, Director, Sesa Coke, Vedanta Ltd.; Prakash Thakur, Section Head, Coal/Coke Sourcing, AM/NS India; Rajendra Pathak, Sr. Vice President, Sourcing and Coke Sales, Jindal Stainless; Himanshu Bajaj, President, IMR Resources India Pvt Ltd.)
*India is the leading metallurgical coke importer in the world (2.47 MnT in 2021) and not much change is expected in terms of import volumes in H2CY’22.
*Steel manufacturers such as Rashmi Group, Kalyani Steels, Welspun Steel will be producing their own coke in H2 and many plants have reduced production after imposition of export duty, thereby limiting demand. However, this could be offset by demand from steel capacity expansion in India and increased requirements from a few existing plants.
*Lower coking coal prices are an attractive proposition for merchant coke manufacturers in India.
*Last year a large quantum of coke was exported from India, which remained a net importer as import volumes reduced substantially to 1.21 mnt.
*Indian coke manufacturers will struggle to compete with their Chinese counterparts in the export market. Last year was the first time India did significant exports, considering India’s coking coal purchase price was around $200/t lesser than China’s.
*Met coke imports by China last year stood at 3 mnt while Japan’s was 2 mnt, which is why coke prices were so high. This scenario is unlikely to repeat this year as the steel market is downtrending and China and Japan will either export or produce less and not import.
*Indonesia is the new entrant in the global met coke market, with installed capacity of 14 mnt. China is not looking at being the major exporter of met coke and has made investments in Indonesia.
India Coal Market Scenario – Rising Raw Material Costs, Supply Challenges & Possible Solutions
(Panellists: R.B. Prasad Director Technical, Central Coalfields Ltd; Thomas M. Cherian, Managing Director, Essel Mining and Industries Ltd. Aditya Birla Group, India; Ashish Navaney, Head – Minerals Trading Business, Tata International; Rahul Mittal MD, Janki Corp & President of SIMA; Capt. Pawan Kumar, Head Coal Sourcing, SEMB Corp Energy India)
*India’s coal imports to rise in H2CY’22 as domestic supply uncertainty persists. Higher coal import costs, however, may have little impact on power tariffs.
*Cost of coal for non-power sector set to go up significantly as evident in the surge in CIL auction premiums.
*Rising share of imported coal in blending to lift per unit power generation cost by 15-20%.
*Despite CIL’s rising coal dispatches, industries are hedging their risks through imports to ensure certainty of delivery and scale.
*CIL is set to raise production to 1 billion tonne by 2025 with increasing production from existing mines. Capacity enhancements from 100 such mines are in the pipeline.
*Output from commercial mines expected to pick up by 2024-25. In the current fiscal, production is expected to increase marginally by around 2 mnt.
*Sponge iron sector open to diversifying import sources from Mozambique, low CSN Australian coal amid elevated South African coal prices.
*Russian coal usage in DRI production set to grow in coming months.
Trade Protectionism Amid Geopolitical Upheaval: Evolving Global Trade Dynamics
(Panellists: Ramli Ahmed, President Director, PT Ombilin Energi; Pavan Kakani, Joint President, Essel Mining, Aditya Birla Group; Siddharth Choudhary, Head – Thermal Coal (MENA and Indian Ocean) Trafigura Pte Ltd; Suneet Kochhar, Vice President, Rawmet Resources Pvt. Ltd; Aman Singal, Head – Sourcing, Minerals Trading, Tata International Ltd)
*For H2CY’22, the current shift in global thermal coal trade flow is likely to persist with more non-Russian supplies flowing into Europe and Russian coal flowing to Asia.
*South African coal exports are set to remain firm with supplies gaining momentum from non-RBCT ports.
*Europe’s loss of 40 mn t of Russian supplies post sanctions will mainly be met by South Africa, Colombia and the USA, while Australian supplies will gain strength in Japan, South Korea and Taiwan.
*European buyers are set to dictate global thermal coal prices for H2CY’22.
*Indonesia is likely to miss its 2022 coal output target of 663 mnt amid heavy rainfall and equipment issues.
*Indonesian coal miners are focusing on emerging markets for exports, while shipments to Europe remain limited amid logistics constraints.
*China is set to remain self-sufficient with its higher coal output this year. Despite rising Russian supplies, enquiries for low-CV Indonesian coal would also persist for blending purpose.
*Softening of global thermal coal prices seems likely, but the prospect of a major fall remains limited.
India’s Steel Demand & Production Outlook-2030
(Panellists: Aruna Sharma, Practitioner Development Economist & former Secretary, Ministry of Steel; V.R. Sharma, MD, JSPL; Alok Sahay, President, Indian Steel Association)
*Industry experts believe it will be difficult to generate consumption for 300 mnt of steel envisaged to be produced by 2030-2031 unless the government supports growth. If the government’s INR 40 lakh crore infrastructure investment proposals materialise, India is expected to reach 220 mnt + steel consumption by that date.
* India will be adding 30 mnt steel capacity every year, which is already under way.
*The country is likely to add 50 mnt/year capacity by 2030.
*India is likely to be impacted in the event of anti-coal lobbies pressuring coal-producing countries to ban exports.
*Till 2025, India is likely to be coking coal-dependent but the country will have to parallelly start working on syngas.
How is India planning to decarbonise the steel industry?
(Panellists: Mukesh Kumar, Director, SRTMI; Prabodha Acharya, Chief Sustainability Officer, JSW Steel; Somesh Biswas, Chief Corporate Sustainability, Tata Steel; U.S.R. Raju, Head, Pellet Plants, AM/NS India)
*Indian mills will be looking to reduce the fuel rate in BFs both to cut emissions as well as costs through renewable energy, natural gas, hydrogen and methane injection, increased use of PCI coal and scrap, biochar, etc.
*Mills will invest in larger capacity BFs and rely on disruptive technologies. Green hydrogen DRI is a great opportunity but it is not the Holy Grail.
*In India, carbon capture and storage infrastructure will have to be developed, although the government, and not individual companies, need to take the lead.
*Direct electrolysis of iron ore also holds potential but is still a nascent technology.
*Increasing pellet feed in BF (above 50%) is essential to increase efficiency and cut emissions. But new technological interventions to raise pellet grades from Fe62-63% to Fe67% will be required.
*The technology roadmap for the Indian DRI sector is increasing gas-based production and increased use of syngas based on the government’s coal gasification mission.
*In a few years, gasification technology for high-ash (35-45%) Indian coal will evolve. The government has to focus on a centralised coal gasification plan with attached CCS facility. The DRI industry can use this syngas because NG prices above $5 MMBtu are not feasible for sponge players.
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