Coal news and updates

‘Specific price cuts need to disincentivise imports’

India's coal imports are falling but not fast enough, which is proving to be a major problem for domestic production.

In fact, according to a JP Morgan report, imports of higher grades from South Africa have increased. And unless demand sees a double-digit pick-up over the coming months, the inventory glut, combined with elevated imports, will continue to weigh on the domestic coal market, particularly on the higher grades, warned the report.

It may be mentioned that Coal India recently decided to forgo the premium it charges on the higher grades, perhaps keeping these macro issues in mind.

As per industry data, India’s total coal imports in FY16 stood at 229 million tons (mt), down 4%. However, thermal coal imports were down merely 9% y-o-y (-16 mt).

Explaining the scenario, the report says FY16 started with a substantial coal inventory in the system given the elevated imports in FY15. Looking at only the power sector, coal production at the 2 state-owned companies (CIL and SCCL) increased by 50 mt, while demand from the power sector increased by 40 mt, but thermal coal imports declined by only 16 mt. And, coal inventories across power plants (went up from 26 mt to 38 mt) while Coal India’s production surged.

The reasons for the increase in coal inventories along with elevated coal import levels are: a) pricing, and b) grades, said the report, adding that while CIL highlighted the board’s decision to forgo performance incentives for higher grades coal, it is not enough, and would likely need specific price cuts in order to dis-incentivise imports.

The problem on coal grades is more difficult to solve, as most of CIL’s production is from the eastern India coalfields where the grades are lower, the report said.

The report feels, in the context of the surge in domestic coal production across both Coal India and Singareni Collieries (combined coal production at these 2 entities is up 50 mt y-o-y) and overall muted demand, a larger decline in coal imports would have been expected, but this has not been the case. Coking coal imports are up 5%, which is also surprising as overall steel production has been flattish (as imports met most of the increase in steel demand).

In a new trend, coal imports from Indonesia declined by -16% y-o-y (23 mt), but imports from South Africa increased by 32% y-o-y (+9.4 mt). Indonesian coal imports into India are inferior grades, while South African coal imports are relatively of higher grades. This reflects the price trends as well as trends in domestic coal production, the report said.