The massive surge in coal consumption led by ever-expanding power demand has left India scrambling to secure adequate supplies despite a significant push seen towards increasing domestic production.
In FY2022-23, the country scaled new heights in coal production. Till February, total production increased by 15% to 784.41 million tonnes (mnt), thereby surpassing the previous high of 777.26 mnt recorded in FY22.
Leading from the front, state-run miner-Coal India Ltd (CIL) is well on course to meet the fiscal target of 700 mnt. In addition, gradual opening of new captive mines has also contributed in production growth.
Improvement in economic activities post-covid paved the way for higher imports last year, and there is an increasing likelihood that the pattern would be followed again in a situation where present demand outstrips domestic supply.
<strong>Govt intervenes to ensure energy security</strong>
Reinstating its stance towards imports for ensuring adequate power availability, the Ministry of Power (MoP) has instructed power plants to import 6% (by weight) of their coal needs for blending purposes till September, 2023.
Interestingly, similar provision was also introduced last year. That time, the blending ratio was kept at 10%.
In this regard, India’s largest power producer, NTPC, has decided to import around 5.4 mnt of coal during first half of next fiscal (FY2023-24).
Also, for the second time, the ministry has asked imported coal-based (ICB) power plants to resume operation at full capacity this year. In addition, a tender has been floated to procure electricity from ICB plants for April-May when power availability is expected to be less than demand.
These provisions would provide ICBs an avenue for power sale, due to which these utilities will need to explore the global market for running their operations.
<strong>Challenges facing non-power sector</strong>
Amid rising demand from the power plants, domestic miners were left with no choice than to lower the supplies meant for the non-power sector.
Incidentally, CIL had diverted additional production volumes towards sales against Fuel Supply Agreements (FSA), which refers to long-terms contracts for power utilities. On the other hand, allocations via regular e-auctions were curtailed.
Moreover, CIL’s decision not to renew long-term contracts for coal supplies under linkage auctions meant for the non-power sector, has further escalated the supply crunch for this sector.
<strong>Price factor</strong>
In the aftermath of the Russia-Ukraine war, coal supply chains had altered which resulted in prices touching record highs. In India too, domestic prices touched unprecedented levels due to factors arising from geopolitical turmoil and prevailing supply cuts.
Upon improvement in supplies, prices have seen significant correction, but still are assessed above year-ago levels.
In the scenario where both global and domestic prices have come down, but the latter is still overpriced given its low energy-content, the Indian buyer will be banking more on seaborne material as it provides greater value in terms of quality.
<img class=”alignnone size-full wp-image-424721″ src=”https://wp-insights-sm.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/03/Indias-Non-coking-Coal-Price-Trend.jpg” alt=”India’s-Non-coking-Coal-Price-Trend” width=”1200″ height=”600″ />
<strong>Thrust on steel production</strong>
Augmenting steel production is essential to supporting economic growth. Moreover, there is a strong case for increasing output after the government had lifted the 15% export duty imposed on finished steel.
<img class=”alignnone size-full wp-image-424723″ src=”https://wp-insights-sm.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/03/Indias-Crude-Steel-Production.jpg” alt=”India’s-Crude-Steel-Production” width=”1200″ height=”600″ />
Therefore, the dependence on coking coal imports is bound to increase. Given that India has scarce coking coal reserves, of which only a meagre portion has low ash content, the big steel companies are not in a position to reduce their dependence on imports in the foreseeable future.
<strong>Outlook</strong>
Stepping up the plan to increase domestic coal availability, the government has introduced several policy reforms to support the mining sector.
With elections round the corner and the pressing need to avert a power crisis, imports are likely to play a key role in satiating rising demand.
<strong>2nd Asia Coal Outlook & Trade Summit </strong>
There has been no let-up in India’s coal imports of late and 2023 may be another year likely to witness sustained growth. Will imports continue on an upward trajectory or will government invention and the projected rise in domestic coal output help to rein in imports? To follow the debate, make sure you attend CoalMint’s 2nd Asia Coal Outlook & Trade Summit in Bangkok, Thailand, on 24-25 April, 2023.
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