India's Coal imports unlikely to rise despite custom duty cut

Although the move to cut Custom duty on Coal imports makes
overseas thermal coal more attractive, it won't be enough to boost imports much
as the gap between domestic and international coal prices is still wide.

Power producers cannot pass on any increase in fuel prices
to consumers.

“Global coal prices are about 40 percent more than
domestic price,” said Parth Bhattacharya, former chairman of state-backed
Coal India, which accounts for about 80 percent of the country's output.

Indonesia spot coal prices are currently around $65 per
tonne while average domestic coal prices are Rs 1,600-1,700/MT.

“This is not going to prompt power producers to
increase imports of coal because imports will still be far more expensive than
domestic coal. Distribution utilities are already in a very difficult situation
and will be little inclined to buy expensive power,” said Sambitosh
Mohapatra, executive director at PwC.

Using the current benchmark Newcastle coal prices at $110
per tonne, and CFR prices around $120 per tonne, the impact of removing the
duty is a benefit close to $6/MT, according to Prakash Sharma, coal market
analyst for WoodMackenzie research consultants.

“I don't see a major spike in imports, but definitely
it is an incentive”, he added.