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India Rises as Importer of Coal

The tides of the world’s seaborne coal trade are shifting rapidly as top consumer China seeks to rely more on domestic output while cutting its use of the polluting energy source.

India, the world’s second-largest coal consumer, is stepping into the breach, pulling in more coal cargoes amid a price slump.

India’s coal imports could rise by more than 8% this year to 170 million metric tons, research firm Wood Mackenzie estimates, putting them almost on a par with those of China, which imported 207 million tons last year.

“India is [now] at the center of the seaborne thermal coal market, given Chinese demand is slowing down,” said Prakash Sharma, research director for Pacific coal markets at Wood Mackenzie.

India’s coal reserves in the ground are among the largest in the world. But production by state-owned Coal India Ltd. has failed to keep pace with demand growth, which has increased the need for imports.

The election of an industry friendly Bharatiya Janata Party-ruled government has brightened India’s outlook for economic growth, which could in turn increase industrial demand for power, Mr. Sharma said.

Indian buyers are also taking advantage of low coal prices, which have dropped to near seven-year lows. Thermal coal currently trades at around $60 a ton free on board from Newcastle, the main global benchmark price.

Prices have slumped due to a combination of oversupply in the market and relatively weak demand. The depreciation in local currencies of producers such as South Africa and Russia against the dollar has given them room to cut their dollar-denominated selling prices as well.

“India’s growth is dragging coal away from China,” said Alex Tonks, Sydney-based managing consultant with consultancy CRU, on the sidelines of a mining industry conference in Hong Kong this week.

Aside from efforts to reduce dependency on coal-fired power, Mr. Tonks said China is building better rail links between its coal-producing regions and areas with power-generation plants, meaning it could come to rely less on imported coal.

China’s coal consumption currently accounts for half of the global demand. Chinese coal import demand has also been weakened by the imposition of tariffs ranging between 3%-6% on different grades late last year, analysts said.

Proposed regulation could introduce more stringent limits on the quality of coal that is allowed to be imported into China, said Marius Toime, a legal partner at Berwin Lieghton Paisner who specializes in the resources sector. He said lengthy technical inspections were already slowing coal imports into China.

Mr. Toime said low spot coal prices had tempted Japanese and Korean customers to step up purchases in recent weeks.

Typically, Japanese customers prefer to pay a premium to secure high-quality coal through long-term contracts. But they have been increasingly buying spot coal in the last two weeks, Mr. Toime said.

source: http://www.wsj.com