Coal imports grew by 8.1 per cent in FY18 on the back of sustained demand from steel sector for coking coal and steady demand from the power and cement industry.
Coal production in India touched 688.4 MT in FY18, clocking a 2.5 per cent increase over last year's production. The two large state-run coal miners, Coal India Limited (CIL) and Singareni Collieries Company Limited (SCCL) together accounted for 91.6 per cent of the total coal produced in the country during FY18.
Coal imports grew by 8.1 per cent in FY18 on the back of sustained demand from steel sector for coking coal and steady demand from the power and cement industry. Total coal import in FY18 stood at 213 MT, against 195 MT in FY17. Australia, Indonesia and South Africa are the three largest exporters of coal to India and contribute to 75-80 per cent of the country's total coal import.
Coal imports were widely anticipated to fall during FY18. The government has been pushing steam coal consumers especially power producers to replace imported coal with domestic coal. But inadequate coal transportation infrastructure especially availability of rakes has been hampering supply to power producers. Coal import trend is expected to continue as power, cement and steel industry are expected to witness improvement in demand and capacity utilisation.
China continues to be the largest coal producer globally and accounts for 45 per cent of the world coal production. The USA, India, Australia and Indonesia together account for 33 per cent of the world coal production. Global coal production stood at 7,270 MT. Globally, coal production has been declining and 2016 marked the largest single-year global production volume decline as per data available from International Energy Agency (IEA).
Developed economies namely USA, China and Europe continued to report fall in demand for coal and have reported growth in gas-based and renewable energy generation. India remains among the top-three coal producers in the world and as per data for 2016 by IEA, overtook USA. USA as mentioned above reported fall in production, whereas India has been reporting growth in production to fuel its large thermal power capacity which contributes to 72 per cent of the country's electricity generation.
Australia accounts for 18-20 per cent of the world coking coal production. India, China and Japan are the largest importers of coking coal from Australia. China is the largest coking coal consumer and accounts for 60-62 per cent of the world consumption. India which is the second largest coking coal consumer accounts for 10-11 per cent of the world consumption.
Australia and Indonesia continued to be the largest coal exporting nations in the world and accounted for 57 per cent of the total coal export volume. The top-4 destinations of exported coal were China, India, Japan and South Korea and accounted for 58.5 per cent of the total global coal import volume.
India: Performance of demand driving sectors for coal
The year witnessed sustained demand for steam coal from power sector. Other sectors like cement and steel which use thermal coal as feedstock and coking coal as raw material reported steady growth in production. Thermal power plants in the country reported capacity utilisation above 60 per cent after having touched 59 per cent levels in 2016-17.
The power sector reported shortage in supply of coal from state-run coal miner's, which has been affecting the operational performance of thermal power plants. The shortage can be roughly equated to the shortfall in CILs coal production target, i.e., 33 MT. Inadequate rail-connectivity and rake availability have been some of the major hurdles which led to shortage of coal during the year at thermal power plants. State-run miner CIL has is expected to invest significantly into developing railway infrastructure over the next 12-18 months which is expected to improve the connectivity of pitheads.
In the absence of unavailability of cheap domestic coal, thermal power plants, in and around coastal regions and ports opt for imported coal.
Steel production has been growing steadily and reported 5.6 per cent growth in FY18. Cement production grew by 6.3 per cent in FY18. During the last 12-months, average global coal prices have been in the range of $ 70-106 with prices hitting the peak in January 2018 after having bottomed out at $72.5 per tonne in May 2017.
Global steam coal prices have been on a steady rise after having touched a low of $ 50 per tonne in May 2016, on the back low demand from China. Coal India, countries largest coal producer hiked coal prices by 10 per cent in January 2018. The average coal price depending upon the Gross Calorific Value (GCV) of coal ranged between Rs 530-3,290 per tonne.
Domestic coal shortage has been widely reported especially for thermal power plants. The state-run miners (CIL and SCCL) on their part have been trying to address the issue of coal shortage at power plants. During the year, 580.3 MT of coal has been made available to the consumers, 7 per cent increase over previous year. CIL has introduced new pricing methodology based on energy content of coal starting April 1, 2018. The same would not have a significant impact on the prices of domestic coal. The price of each tonne of coal will be based on its total energy content.
Coal accounted for 4.9 per cent of total imported goods by value (approximately $22 billion) and is the fourth most imported commodity behind petroleum, precious stones and gold.
Steam/thermal coal import
India imported around 155-158 MT of steam or steam coal used as fuel for thermal power plants. Roughly 80-85 GW of thermal power capacity in India is partially or fully dependent on imported coal to fuel these power plants. Additional 6-7 MT of other types of bituminous and coke was imported for other industries. Indonesia (81.5 MT), South Africa (33.5 MT), USA (6 MT), Mozambique (3.1 MT) and Australia (1.7MT) are the largest exporters of Steam coal to India between April-Feb 2018.
Coking coal, also known as metallurgical coal, is used to create coke, one of the key inputs for the production of steel. China, India, South Korea, Japan and European Nations are major global demand centres of coking coal for manufacturing steel.
India imported roughly 46.5 MT (estimates) of coking coal in FY18, 8.1 per cent growth over import volumes in FY17. India also has coking coal reserves but the quality of domestic coking coal is inferior to imported coking coal. Imported coking coal fulfils 65-70 per cent of the total coking coal demand from steel industry.
Around 3/4th of India's coking coal imports come from Australia, and the remaining from Canada, USA, Russia, Indonesia etc.
Performance of CIL and SCCL
Coal India and Singareni Collieries Company are the two largest coal miners in the country. The two companies together produced 629.4 MT of coal which includes both steam and coking coal. India's largest coal producer CIL has been unable to meet its annual target set by Government. CIL meeting its coal mining target would easily help cut coal imports by up to 10-15 per cent depending upon the quality of coal produced.
CARE Ratings view
Total coal production may stagnate during the year given no visible improvement in availability of rakes or increase in evacuation infrastructure for mined coal. We expect the total domestic coal production to grow in the range of 2.5-3.5 per cent (705-712) MT for FY19. There is an immediate requirement to auction private coal blocks of coking and steam coal for 50 MT per annum, in order to control import of steam and coking coal. Total import of coal including coking coal and steam coal could touch 235-245 MT if the government approves an order to ban use of pet coke which is a feedstock in cement industry. Additional 35-40 MT of imported steam coal would be required to compensate for the pet
Source: CARE Ratings