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Coal revival seen fading as India’s rising output trims imports

India’s surging coal output is dealing a blow to chances of a revival in global prices as the third- biggest consumer looks to dramatically reduce overseas purchases.

Coal India Ltd, the country’s monopoly miner and the world’s largest producer, supplied 156.15 million metric tonnes in the four months ended 31 July, a 10.5% boost compared with the previous year and more than double the increase for the same period in 2014. As a result, the country’s total coal imports may hardly rise this year, according Mjunction Services Ltd.

“India’s thermal coal imports will come down drastically in the coming years, if not end altogether,” Anil Swarup secretary at the ministry of coal, said in an interview. “We have put the processes in place and results will show.”

Global thermal coal prices have sunk near a five-year low amid a glut of the fuel and slowing demand from China, the world’s biggest buyer. The likelihood of a revival in prices depends on India’s production lagging the country’s demand, according to Bloomberg Intelligence.

Coal shipments to India increased at an annual compounded rate of 19% over the past four fiscal years, according Mjunction Services, a Kolkata, India-based commodities auction platform. That fuelled forecasts that the South Asian economy may surpass China as the biggest importer of power station coal. Given the boost in domestic production, purchases of both thermal and coking varieties may only rise by about half a percent to 240 million tonnes in the year to 31 March, Mjunction forecasts.

Move the needle

“Indian demand was the only one that could move the needle,” Andrew Cosgrove, a US-based analyst at Bloomberg Intelligence, said last week. “There’s nobody else on the horizon.”

Australia’s Newcastle coal, an Asian benchmark, has slumped to about $60 a ton from as much as $136.30 in early 2011. Global supply will outpace demand by 8.5 million tons this year, compared with a balanced market last year, analysts at Morgan Stanley said in report in June. The surplus will expand to as much as 15.8 million tons by 2019.

The spurt in output is a result of intense monitoring of projects and greater cooperation with states, which has led to faster land purchases, one of the main hurdles for Coal India, which produces about 80% of India’s coal, Swarup said.

The miner, which has been blamed for missing output targets, has been able to acquire 2,000 hectares of land in the past year and has received approvals for more than 40 new mining projects, he said. Coal India will report first-quarter earnings Wednesday.

Land, rails

“We have been able to convince the states that more mining brings them more revenues in terms of royalty,” Swarup said in the interview last week. “That has made land acquisition faster and easier. We have also worked with the environment ministry to ensure decisions are made on time.”

Work is also under way to build three new railway lines connecting untapped mines that hold the potential to produce 300 million tons of coal every year. These lines should be ready by the end of 2017, Swarup said.

The results are starting to show. Stocks at power plants are plentiful, a departure from previous years when coal supplies dropped to critical levels.

source: http://www.livemint.com