At a time when global coal prices have more than doubled over the past year, India’s Economic Cooperation and Trade Agreement (ECTA) with Australia provides zero-duty access for Australian coal exports to India for the next five years.
India imports about 35% of its coal requirement from Australia and both coking and thermal coal attract a duty of 2.5% (1% import duty and 1.5% AIDC). Although the official notification from the government is still awaited, industry participants are of the opinion that the duty on coal would be lifted.
What could be the impact of the duty elimination on thermal and coking coal trade dynamics.
Australia to emerge as key thermal coal exporter
After the Chinese ban on Australian coal imports in the second half of 2020, the latter’s thermal coal prices touched a historic low and the country had to find new markets for its thermal coal. This provided a great opportunity to Indian buyers to look for cheaper alternatives to South African and Indonesian coal prices of which were spiralling on robust China demand.
Subsequently, Australia’s share in India’s thermal coal imports increased from 4% in 2019 to 15% in 2021. In terms of volumes, India’s Australia-origin thermal coal imports rose sharply by 139% y-o-y to 21 mn t in CY21, as per customs data.
A close analysis of Australian coal imports last year shows the cement industry was the highest importer of Australian coal with Ultratech Cement, Ambuja Cement, Shri Cement, and other producers sourcing a total of 4 mnt of Australian coal in 2021.
Higher pet coke and South African thermal coal prices had left Australian coal imports as the most viable option.
Tight coal supplies from Indonesia had compelled several power plants reliant on imported coal to import Australian coal last year. These included Semb Corp Gayathri Power, Udupi Power (0.7 mnt), and OPG Power (0.3 mnt).
When Australian thermal coal prices gained traction this year and rose sharply (equivalent to other-origin coal) amid Indonesia’s ban on coal exports, supply disruptions due to rains and the Russia-Ukraine conflict, Indian imports from the country took a hit.
During Jan-Feb’22 imports from Australia fell by 55% y-o-y to 1.9 mnt, as per customs data.
However, now that the import duty has been removed Australian coal would have a price advantage over coals from Indonesia and South Africa and it is likely that Australia’s share in Indian thermal coal imports would increase further.
Australia’s 80% share in India’s coking coal imports
Following China’s unofficial ban on Australian coal imports, the latter’s share in Indian coking coal imports have increased from 73% in 2019 to 80% in 2021.
According to market participants, removal of the 2.5% duty on Australian coking coal imports would not make much difference and that Australia’s share would go up further. This is because in terms of value, duty is not that significant and India has limited options as far as coking coal from other origins like the USA and Canada are concerned given the high voyage time.
However, now that Australian coking coal prices are at all-time highs and Russian sellers are selling coking coal at discounted rates amid sanctions imposed by the west, there is a possibility that needs to be considered.
In this case, Russian coking coal may make its way into India while the removal of the import duty on Australian coking coal is unlikely to provide any benefit as Russia’s share in Indian coking coal imports increase.
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