Soaring International Prices to Curtail Coal Imports into India
India Ratings and Research has published the May 2021 edition of its credit news digest on India’s coal sector. The report highlights the demand-supply scenario, price trends, imports in both India and China, encompassing non-coking coal and coking coal, while also evaluating at the impact of end-user industries on India’s coal sector. The report also covers the recent updates on commercial coal mining. Ind-Ra believes the domestic coal production and offtake shall be supported by the low inventory levels at end-April 2021 and elevated import prices, respectively, despite temporary headwinds due to the second covid wave led curbs leading to curtailed industrial activities.
Lower Domestic Offtake & Production: Coal offtake dipped 9.3% mom in April 2021, driven by a 2.3% MoM lower domestic power demand due to the second covid wave. However, the offtake increased 41.4% YoY in April 2021 to 59.5 million tonne on a low base last year when the country was under a complete lockdown. While domestic coal production dipped 46.6% MoM in April 2021 to 46.8 million tonne in line with past trend as highest production in a year happens in the month of March, it was higher 7.8% YoY due to limited covid-led disruptions in April 2021 compared to April 2020.
Sustained High Power Demand: Energy demand growth sustained momentum in April 2021 by 39.3% YoY on a low base, while thermal coal-based power generation improved 64.3% YoY. With covid-led infections rising again, the energy demand was marginally lower 2.9% MoM. As the total coal procurement was 4.36% mom lower, inventory levels at power stations dipped 15.1% MoM. The share of thermal coal-based power generation in overall electricity generated in April 2021 stood at 76.4% (April 2020: 64.5%). As the second wave led state-wise curbs in May 2021 have led to curtailed industrial activities, the power demand in the month is likely to have been lower mom despite peak-summer demand.
Rising Thermal Coal Import Prices: Import prices for Indonesian-origin thermal coal, primarily consumed in the power sector, increased further 26% mom up to end-May 2021 on production and supply disruptions due to heavy rainfall, a strong Chinese demand and re-stocking requirements ahead of the monsoon season. On the other hand, South Africa-origin thermal coal prices, primarily used in sponge iron manufacturing in the steel sector, increased by 9%-12% mom at end-May 2021 on the restrained port operations in India due to invocation of force majeure by various port authorities, limited stocks on Indian ports, rising Chinese demand and supply disruptions in the transportation services to the RCBT port in South Africa.
Thermal coal import prices have limited upside support. Owing to elevated import prices and prevailing demand uncertainty due to second-wave led curbs in various parts of India, partial thermal coal requirement is likely to be substituted by domestic coal. Also, as the supply regularises, global prices are likely to witness downward pressure, unless supported by strong Chinese demand.