- Higher power demand pushes up imports, despite rise in global coal prices
- Cheaper Russian, Mozambican coal fill gap created by decline in South African, Australian imports
- Sharp rise in imports capped as most consuming sectors are well stocked for next two months
Morning Brief: India’s thermal coal imports rose 14% y-o-y to 140 million tonnes (mnt) during January-October, 2022, as per CoalMint data, despite volatility in the global coal markets since the outbreak of the Russia-Ukraine war.
The rise in coal imports indicates the strong demand push in the country on the back of higher power requirement.
However, the bookings during the first ten months of the year were made with significant changes in buying strategies as domestic end-users focused on price advantages.
Amongst traditional sources, shipments from Indonesia increased so far this year since these are relatively cheaper compared to cargoes from South Africa, Australia, and the US.
Mid-CV Indonesian 5500 kcal/kg (NAR) prices averaged $173/t, cheaper by $26/t from Australian-origin coal, and lower by $48/t compared to South African coal of similar grade.
The gap created by the decline in South African and Australian coal imports — by 21% and 48% y-o-y, respectively — was plugged in with imports from Russia and Mozambique which surged during January-October 2022.
Russian coal finding its way to India
India’s thermal coal imports from Russia marked a whopping 243% rise on a y-o-y basis as miners in that country offered at discounted rates.
Western sanctions on Russian exports had triggered an energy crisis in Europe as buyers aggressively sought alternate supplies. Elevated LNG prices and volatility in the gas market compelled some EU countries to resume operations at idled coal-fired power plants despite rising climate concerns.
This forced EU buyers to increase their coal imports from South Africa, Australia, and the US. Even Japan and South Korea also purchased coal from these countries at higher prices.
Subsequently, due to reduced demand from these countries, Russian sellers offered cheaper coal to countries like India and China.
Mozambican coal shipments also rose by 102% y-o-y, with increasing usage seen in the cement sector and, to some extent, in the sponge iron industry too.
Imports by power sector up sharply
Thermal coal imports by Indian power plants have grown at a steep rate, rising 51% y-o-y to 43.11 mnt during January-October 2022, as per data provided by the power ministry. In October 2022, as per CoalMint data, thermal coal import are estimated at 3.23 mnt.
Notably, the quantum of imports in the first ten months has already surpassed the total imports of 31.76 mnt recorded in CY21.
This scenario has evolved as the continuous increase in demand for electricity post-lockdown put massive pressure on power generation plants, most of which are operating on coal.
The Ministry of Power (MoP) issued strict guidelines for power plants to import coal for blending and had even called for penalties in the form of curtailment in domestic supply in case necessary steps were not taken.
With domestic supplies falling short of rising demand, imports were necessitated as inventories at power plants fell to alarming levels earlier this year.
Several electricity boards from Haryana, Punjab, Rajasthan, Gujarat and Maharashtra this year were compelled to procure imported coal for their plants as against nil imports recorded in the year-ago period.
During the first ten months of the year, power consumption rose 8% y-o-y to 1,243.11 billion units, primarily driven by intense heat waves during summer when demand had surged to record high levels.
CIL’s obligation
It must also be noted that there was a wider impact of the prevailing supply-demand gap as the government was compelled to rope in state-run miner Coal India Ltd (CIL) to release tenders for imported coal procurement on behalf of the power plants.
Responding to the call, CIL executed three tenders involving the delivery of imported coal on FOR basis: one for short-term and two for medium-term supplies.
Of these, the company has awarded two tenders for imported coal to Indonesian firm Bara Daya Energi. These tenders are meant for medium-term supply in an equal volume of 3 mnt each at ports located on eastern and western coasts, with an option to double the requirement to 6 mnt.
However, the short-term tender, involving supply of 2.416 mnt of imported coal, was cancelled as the L1 price in the technical round was not considered reasonable.
Imports by steel, sponge iron sectors up
Despite elevated global prices, the Indian steel and sponge iron units increased their coal imports this year.
As per CoalMint vessel tracking data, total thermal coal imports by the steel and sponge iron sectors totalled 30 mnt during January-October, 2022, a 37% rise on a y-o-y basis.
The sharp increase in shipments by these sectors happened as domestic coal supply issues made the non-power industry completely reliant on imports.
As per Joint Plant Committee data, India’s crude steel output rose by 7% y-o-y during Jan-Oct’22,. This is turn also supported the case for higher sponge iron production, which marked a 12% y-o-y rise to 31 mnt during the same period.
Crude steel output in Oct’22 are estimated at 10.24 mn t, as per SteelMint data.
Sponge iron is an intermediate product, which is produced from iron ore by means of direct reduction of iron ore and is then further reduced and smelted in an electric furnace.
A sharp rise in the production volumes, however, was capped as the government imposed a 15% export duty on steel, steel-making raw materials and intermediaries to rein in prices and preserve domestic supplies.
Sector-wise imports
Weak construction activity amid inflationary pressures dragged down imports by the cement sector by 20% during the first ten months of the year, while producers focused more on pet coke bookings.
Imports from the chemical and fertilizer industries also marked strong growth, while that from paper mills declined sharply.
Outlook
India’s thermal coal imports have been on a declining trajectory over the last four months amid rising domestic coal output and slowdown in demand amid still-elevated global prices.
While global prices are expected to weaken in the coming weeks, the possibility of any major rise in India’s imports is limited as most of the coal-consuming sectors have sufficient inventories for the next two months.
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