Coal imports on the rise
Total coal production in India during April-August 2018 was 264 million tonne (MT) and recorded a growth of 10 per cent y-o-y. It was mainly aided by 12 per cent growth in production by Coal India (216 MT) during the first five months of FY19. The two largest state-run coal miners (CIL and SCCL) produced 240 MT of coal, accounting for 90.5 per cent of total production in the country.
Imported Coal Volume up
Coal imports grew by 13.9 per cent during the April-August 2018 period, at 95.2 MT. Share of coal from Australia, Indonesia and South Africa stood at 21.8 per cent, 41.8 per cent and 14.8 per cent respectively. Coal from USA more than doubled y-o-y for the period and constitutes 8 per cent of the total coal imported by India.
'Coal import trend is expected to continue as power, cement and steel industry are expected to witness improvement in demand and capacity utilisation. India is the second largest producer and second largest importer of coal behind China,' leading rating firm CARE Ratings said in an update released in October 2018.
Performance of demand driving sectors
April-August 2018 period witnessed sustained demand for steam coal from power sector with electricity generation reporting 5.3 per cent growth year-on-year (y-o-y), while other sectors like cement and steel, which use thermal coal as feedstock and coking coal as raw material, reported steady growth in production. Steel production has been growing steadily and reported 3.4 per cent growth in FY18. Cement production grew by 14.7 per cent during April-August 2018, said the report, prepared by a team led by Madan Sabnavis, Chief Economist, CARE Ratings.
Thermal power plants in the country reported capacity utilisation above 60.5 per cent after having touched 59 per cent levels in 2017-18. Thermal power plants under CEA reported a marginal drop in receipt of imported coal from 23 MT for April-Aug 2017 v/s 22.5 MT for April-August 2018. This indicates captive power users and others industries are major drivers of demand for imported coal.
Domestic coal shortage has been widely reported especially for thermal power plants. The state-run miner (CIL) on its part has been trying to address the issue of coal shortage at power plants. CIL and SCCL together reported 9 per cent growth in offtake and 10.6 per cent growth in production during April-August 2018. Besides, supply chain issues due to inadequate rail-connectivity for coal evacuation and rake availability continue to be a major factor impacting availability of coal.
Shortage of coal has impacted spot market and merchant power tariffs, hitting Rs 18 per unit levels. Between January-August 2018, coal prices have been in the range of $100-125 with prices hitting the peak average price of $125 in April 2018. Global steam coal prices have been on a steady rise after having touched a low of $50 per tonne in May 2016.
The price fluctuation has been on account of change in policies and supply bottlenecks in Indonesia, which contributes to two-third of the thermal coal imports to India. Increase in demand for thermal coal from China has been another major factor for increase in global coal prices.
Domestically, CIL was planning to introduce a new pricing methodology based on energy content of coal starting April 1, 2018. The implementation of the same has been postponed and is still under discussion. CARE Ratings expects the same to be implemented in the coming quarters of FY19.
Domestic production & imports
Coal India Limited and Singareni Collieries Company Limited are the two largest coal miners in the country. The two companies together produced 240 MT of coal which includes largely thermal coal and limited quantity of coking coal. 'India's largest coal producer CIL has been unable to meet its production target but we expect the same to improve in the following quarters as mining operations improve post monsoon, says CARE Ratings.
Capex achievement by CIL and NLC stood at 19 per cent of the Rs. 17,150 crore planned capex during the year. 'In order to meet their production targets, the mining companies need to achieve their capex targets, focusing on improving production and productivity through mechanisation and automation,' CARE Ratings adds.
India imported 95 MT of coal (coking and non-coking), recording a growth of 13.9 per cent y-o-y. India imports most of its thermal coal from Indonesia. Coking coal used in the steel industry is imported from Australia. Indonesia (39.8 MT), Australia (20.8MT), South Africa (14.2 MT) and USA (7.6 MT) are the largest source of imported coal by volume between April-August 2018.
Roughly 80-85 GW of thermal power capacity in India is partially or fully dependent on imported coal for fuel. Imported coking coal fulfils 65-70 per cent of the total coking coal demand from steel industry. Around three-fourth of India's coking coal imports come from Australia, and the remaining from Canada, USA, Russia, Indonesia, etc.
Total domestic coal production may remain stagnant with 2.5-3.5 per cent of growth in FY19 at 705-712 MT. Realisation is expected to increase especially on the back of shortage and implementation of the new coal pricing policy by CIL, says CARE Ratings. It expects higher import of coal during the year in the range of 225-240 MT vs 208 MT in FY18. Improved capacity utilisation in power (captive and non-captive users), cement and steel would be major drivers of coal import, the rating agency believes.