*Power sector consumption to be nearly 770 mnt
*CIL supplies to non-power sector down sharply in April
*Buyers likely to opt for low-CV imported cargoes amid elevated prices
India registered highest ever coal production in FY2021-22 and despite the aim of import substitution it seems that the country’s import dependency is only likely to grow. The sharp spike in domestic demand and supply bottlenecks could mean that India shall have to import around 20-30 million tonnes (mnt) of extra coal on a year-on-year basis this fiscal, CoalMint estimates show.
Not so long ago, the government was adamant on reducing imports in view of abundant coal reserves in the country.
But, unprecedented rise in power demand has compelled the government to make a U-turn on its previous stance, as it has asked power plants to increase their sourcing of imported fuel to ensure uninterrupted operations.
The country’s annual demand for non-coking coal is around 900-950 million tonnes (mnt), of which a major chunk is sourced domestically.
However, there are several factors that suggest the country is at a risk of losing more forex as the buyers would continue to explore the global market to meet their requirement.
Spurt in power demand
Demand for power has been growing at a staggering pace since the easing of COVID-19-induced lockdown restrictions in the country with the momentum continuing in the new fiscal.
Power demand was at a record-high level in April, 2022 driven by the intense heatwave in midsummer. Notably, the highest demand met peaked to a new high of 207.11 GW on 29 April, as per the Union Power Ministry data.
The Ministry of Power (MOP) highlighted that demand is not expected to slow down any time soon and would reach about 215-220 GW in May-June.
This has to again put the onus on coal-based power plants, which account for almost 70% of India’s energy demand.
Ministry takes guard
To keep pace with elevated demand, MOP has made all-out efforts to ensure uninterrupted power supply.
Recently, the Ministry ordered all power plants based on imported coal to resume operations at full capacity by invoking section 11 of the Electricity Act, 2003.
These plants were commissioned at coastal areas to save considerable cost in coal transportation for coal supply from distant mines. However, the spurt in global coal prices has impacted their operations.
In an attempt to provide support to the stressed plants, the government has even ensured arrangement of finance from Power Finance Corp (PFC) and REC so that working capital does not become a problem for these power utilities.
The government has also asked the generating companies (gencos) to import coal for blending up to 10% so as to ensure ample availability before the onset of monsoon.
The country’s largest power producer, NTPC, has floated tenders for coal imports in batches for a quantity of around 16 mnt. Moreover, various state electricity boards had either placed tenders or are in the process of issuing tenders.
Non-power sector at receiving end
While the coal companies and the Indian railways have joined hands to step up coal supplies to the power plants, there was not enough support to the non-power sector as they still await the return of normalcy in supplies.
Dispatches by state-run Coal India Ltd. (CIL) to the non-power sector hit a new low decreasing by 35% y-o-y to 7.78 mnt in April as against 11.93 mnt in April, 2021. Notably, this was the lowest monthly dispatch volume recorded since April, 2020 when supplies had fallen to 7.11 mnt.
Demand from the power sector is expected to remain elevated due to higher coal consumption during the peak summer season followed by the monsoon season when supplies are generally disrupted.
In such a situation, the power sector would continue to rely on CIL for supplies via fuel supply agreements (FSA), thereby depriving the non-power sector of its share.
The non-power sector predominantly consists of cement, sponge iron, captive power plants and a host of other industries. These industries resort to imports in order to procure high-quality material and would have no choice but to increase imports in case disparity in domestic coal supply continues.
Logistical handicap
Captive miners rose to the occasion by ramping their coal production to 83 mnt in FY2021-22, but the growth rate has been sluggish on account of delay in development of coal blocks that were allocated.
On its part, the Ministry has stepped up efforts to expedite the allotment process by aggressively conducting auctions for commercial sale of coal blocks. However, operations have started in only a few of these blocks.
On the other hand, logistics constraints on the back of inadequate development in railway infrastructure have only made the situation worse.
Interestingly, coal companies are unable to augment supplies beyond a certain point in view of the lack of rake availability for coal movement despite ample inventory at the mine pitheads.
Imports to rise
Assuming an economic growth rate of 5%, India’s non-coking coal demand in FY’23 is expected to reach 1.001 bnt of which the share of domestic supplies should be close to 859 million tonnes, as per CoalMint estimates. Domestic supplies mainly comprise CIL dispatches, which are expected to be over 690 mnt in FY’23. Singareni Collieries Company Ltd. (SCCL) is expected to turn out 68.81 mnt, while sales from the captive mines are likely to reach over 95 mnt.
Dispatches by CIL stood at 660 mnt in FY’22.
This means that coal imports to the tune of 142 mnt would be required to meet the additional demand. MoP has set a target of 1179.37 billion units (BU) of coal-fired generation for FY’23. At specific coal consumption of 0.65 kg/unit, the plants would alone consume 767 mnt of coal during the period under review.
However, considering the present domestic supply pressure and the spate of import tenders being issued by the power companies, not to forget the supply squeeze impacting non-power sector companies, it is inevitable that a larger volume of import bookings will happen before monsoon due to restocking needs.
CoalMint data reveals that India’s thermal coal imports in FY’22 stood at 134 mnt. It can be assumed that additional coal imports of around 20-30 mnt would be required to satisfy surging domestic demand in FY’23.
Imports of non-coking coal have been slow at the beginning of the fiscal, falling 23% y-o-y to 12.4 mnt in April, 2022 amid elevated global prices. Going forward, global price volatility is likely to remain a major challenge for buyers seeking coal cargoes and is it likely that there would be a higher preference for low-CV coal grades.
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