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  • India: Record coal production in FY23 fails to rein in imports

    India: Record coal production in FY23 fails to rein in imports

    • Govt mandates imports to meet peak power demand
    • Shipments from Indonesia, Russia increase sharply
    • Imports likely to remain high in Q1FY24

    India’s coal imports increased sharply by around 18% y-o-y to over 237 million tonnes (mnt) in financial year 2022-2023 (FY23) from 202 mnt in FY22, data maintained with CoalMint reveals.

    Interestingly, imports surged despite record domestic coal production in FY23. The country recorded historic growth in its coal output at 892.21 mnt in FY23, Union Coal Minister Pralhad Joshi informed recently. Total coal production was 15% higher from 777 mnt in FY22.

    Out of total import shipments in the recently concluded fiscal, those of non-coking or thermal coal stood at over 166 mnt, which is roughly 70% of total imports. Non-coking coal imports edged up by 23% y-o-y on higher demand from power producers and with the government mandating imports to meet peak power demand.

    On the other hand, total imports in FY23 of coking coal and PCI coal stood at over 69 mnt compared with 65 mnt in FY22. While hard coking coal imports increased by just around 3% y-o-y, imports of PCI coal for usage mainly in blast furnace steelmaking rose sharply by 22% on the year.

    Why imports increased?

    *High power demand: Government data shows India’s power consumption surged 10% to 1,375.57 billion units (BU) during the April-February period in FY23, thereby already surpassing the level of electricity supplied in FY22.

    Power consumption in April-February of FY22 stood at 1,245.54 BU. In FY22, power consumption was 1374.02 BU, which is less than 1,375.57 BU recorded during the April 2022- February 2023 period. So, the imported coal-based power plants had to raise imports.

    *Govt mandates imports: To ensure adequate power availability, the Ministry of Power (MoP) has instructed power plants to import 6% (by weight) of their coal needs for blending purposes till September, 2023. A similar mandate had been issued last year too. That time, the blending ratio was kept at 10%. As a result, India’s State-owned power producers as well as major miners raised coal imports till June-July 2022 although shipments fell post September as peak summer demand subsided along with monsoon-related logistical disruptions.

    This year, too, the government has asked the imported coal-based (ICB) power plants to carry on operations at full capacity. In addition, a tender has been floated to procure electricity from ICB plants for April-May when power availability is expected to be less than demand.

    *Steel production rises: India’s steel production edged up to nearly 125 mnt in FY23, as per government data, from around 118 mnt in FY22, an increase of 6% on the year. In the absence of quality domestic coking coal reserves, imports naturally increased. Besides diversifying import sources amid historic-high coking coal prices, Indian steelmakers also ramped up usage of PCI coal to increase furnace efficiency even while reducing the usage of costly metallurgical coke. This saw volumes from Russia increasing sharply y-o-y.

    Trade flows

    The top exporter to India was Indonesia, with total shipments standing at 112 mnt -up 55% on the year. Indonesia is the world’s largest seaborne exporter of coal, accounting for 32.3% of the global seaborne coal market in 2022. The country has set an export target of over 500 mnt of coal in 2023. India purchases mainly high-to-low-CV non-coking coal from Indonesia.

    With the rise in Russian supplies, it is expected that only low-CV Indonesian coal will henceforth be attractive for Indian buyers, said a miner source based in Indonesia. After persistent pandemic disruptions and temporary export bans, Indonesian exports surged in FY23.

    Imports from Australia, however, fell by over 20% to around 55 mnt, out of which over 36 mnt was coking coal. Even coking coal imports from Australia dropped 13% on the year as a result of India’s efforts to diversify coking coal sourcing amid record-high global prices following the outbreak of the Russia-Ukraine war in February last year.

    Similarly, India increased its met coal imports from the US and Canada sharply to around 10 mnt from less than 5 mnt in FY22. Marked growth in Canadian coal production and easing of disruptions in key US coal terminals supported higher shipments.

    Notably, imports from Russia surged by over 170% on-year as the country stepped up shipments of cheaper cargoes to Asian consumers to amid sanctions imposed by the EU and US as well as G7 allies. Imports from South Africa, on the other hand, decreased by 33% as Mozambican and Russian exports to India surged. Imports from Mozambique rose by 97% y-o-y to nearly 11 mnt in FY23, with Indian DRI producers ramping up sourcing due to record-high South African coal prices amid global energy inflation.

    However, with subsequent correction in global coal prices, trade flows seem to be returning to settled patterns.

    Outlook

    Experts say power consumption is expected to grow in double digits in the coming months in view of forecasts of unprecedented high demand, especially in summer. The power ministry has estimated peak power demand in the country at 229 GW during April this year, which is higher than 215.88 GW recorded in the same month a year ago.

    Following the government’s mandate, NTPC, India’s largest power producer, has decided to import around 5.4 mnt of coal during the first half of FY24. So, imports are expected to remain high through till July-August this year.

    Interestingly, India’s coal imports have returned to the pre-Covid levels of around 240 mnt seen in FY19 and FY20.

    Despite the government’s aim of augmenting domestic washery capacity and achieving coking coal production of 140 mnt by FY30, imports are likely to grow parallelly with India’s fast-expanding steelmaking capacity. Imports are projected to reach 75-80 mnt by 2025-2026.

    Logistical bottlenecks and high freight rates have increased dependency on imports by impeding pit to plant coal transport. Total coal loading by the Indian Railways in FY23 increased by over 11% to 653.36 mnt and total freight earned rose by 22% y-o-y. The allocation of more rakes, special lines and dedicated freight corridors for coal transportation and rationalization of freight rates are expected to increase domestic availability of coal.

    2nd Asia Coal Outlook & Trade Summit

    There has been no let-up in India’s coal imports of late and 2023 may be another year likely to witness sustained growth. How is the government planning to rein in imports by 2025-26? To follow the discussion, book your seat at CoalMint’s 2nd Asia Coal Outlook & Trade Summit in Bangkok, Thailand, on 24-25 April, 2023.

  • India’s coal imports to surge again on peak summer demand?

    India’s coal imports to surge again on peak summer demand?

    The massive surge in coal consumption led by ever-expanding power demand has left India scrambling to secure adequate supplies despite a significant push seen towards increasing domestic production.

    In FY2022-23, the country scaled new heights in coal production. Till February, total coal production increased by 15% to 784.41 million tonnes (mnt), thereby surpassing the previous high of 777.26 mnt recorded in the previous fiscal.

    Leading from the front, state-run miner-Coal India Ltd (CIL) has maintained higher production and is well on course to meet the fiscal target of 700 mnt. In addition, gradual opening of new captive mines has also provided remarkable contribution in production growth.

    India’s dependency on coal imports, particularly of thermal coal, hit a low on the backdrop of Covid-induced demand disruption. However, improvement in economic activities paved the way for higher imports last year, and there is an increasing likelihood that the pattern would be followed again in a situation where present demand outstrips domestic coal supply.

    Govt intervenes to ensure energy security 

    Reinstating its stance towards imports, the Ministry of Power (MoP) has instructed power plants to resort to imports by procuring 6% (by weight) of their needs for blending with domestic coal till September, 2023 failing which curtailment in domestic supply has been proposed.

    The decision has been taken to ensure smooth operations at thermal power stations. Interestingly, similar provision was also introduced last year. That time, the blending ratio was kept at 10%.

    In this regard, India’s largest power producer, NTPC, has decided to import around 5.4 mnt of coal during first half of next fiscal (FY2023-24). The company has already floated two separate tenders seeking a total of 2 mnt of imported coal. The due date for bid submission is 18 April, 2023.

    Also, for the second time, the ministry has asked imported coal-based (ICB) power plants to resume operation at full capacity this year by invoking the emergency law under Section 11 of the Electricity Act, 2003.

    In addition, a tender has been floated to procure electricity from ICB plants for April-May when power availability is expected to be less than demand.

    These provisions would provide ICBs an avenue for power sale, due to which these utilities will need to explore the global market for running their operations.

    Challenges facing non-power sector

    In India, the power sector accounts for a lion’s share of domestic coal supply. Hence, at a time when coal demand from the power plants had increased this year, domestic miners were left with no choice than to lower the supplies meant for the non-power sector.

    Incidentally, CIL had diverted additional production volumes towards sales against Fuel Supply Agreements (FSA), which refers to long-terms contracts initiated with the power utilities. On the other hand, allocations via regular e-auctions, which constitute 20% of CIL’s sales, were curtailed.

    Under these circumstances, CIL’s coal dispatches to the non-power sector are set to decline for the second straight year in FY23.

    Moreover, CIL’s decision not to renew long-term contracts for coal supplies under linkage auctions meant for the non-power sector, has further escalated the supply crunch for this sector at a time the demand for power is showing no signs of slowing down.

    Price factor 

    In the aftermath of the Russia-Ukraine war, coal supply chains had altered which resulted in prices touching record highs. However, prices have started to decline since the second half of 2022 amid reduced appetite from China and rise in production seen from the major exporter Indonesia.

    Meanwhile, reduced Russian coal exports to Europe were balanced by hike in supplies from Colombia and South Africa.

    In India, domestic prices touched unprecedented levels due to factors arising from geopolitical turmoil and prevailing supply cuts. Notably, healthy competition was seen amongst the buyers to procure the limited material offered at auctions. In addition, the introduction of the single window auction, which brought the entire gamut of customers on to a common platform, also pushed bid prices higher.

    Upon improvement in supplies, prices have seen significant correction, but still are assessed above year-ago levels. In the scenario where both global and domestic prices have come down, but the latter is still overpriced given its low energy-content, the Indian buyer will be banking more on seaborne material as it provides greater value in terms of quality.

    Thrust on steel production 

    Augmenting steel production is essential to supporting economic growth. At the same time, the government’s thrust on import substitution in the steel sector has resulted in the Performance-Linked Incentive Scheme (PLI) being introduced.

    Moreover, there is a strong case for increasing output after the government had lifted the 15% export duty imposed on finished steel. This move might prompt the steelmakers to explore the export market to fetch higher price realisations.

    Therefore, the dependence on coking coal as well as PCI imports is bound to increase with the higher generation of liquid steel through the primary route. Given that India has scarce coking coal reserves, of which only a meagre portion has low ash content, the big steel companies are not in a position to reduce their dependence on imports in the foreseeable future.

    Outlook 

    Stepping up the plan to increase domestic coal availability, the government has introduced several policy reforms to support the mining sector. These include extension of mining lease period, eliminating prior approval required for capacity expansion, along with creation of a single window system.

    Moreover, regular auctions are being conducted for allocation of coal blocks under the commercial mining scheme. In view of the dwindling response from the prospective bidders, the sale was made lucrative by providing relaxation in payment terms and improving the feature of blocks offered in the lot.

    These measures paid off as a total of 25 blocks were sold in the recently concluded sixth tranche, marking the highest allocation recorded for a single tranche.

    CIL is also exploring opportunities to re-open abandoned mines which had been closed mainly on account of difficult mining conditions and financial losses.

    With elections round the corner and the pressing need to avert a power crisis, imports are likely to play a key role in satiating rising demand.

    2nd Asia Coal Outlook & Trade Summit 

    There has been no let-up in India’s coal imports of late and 2023 may be another year likely to witness sustained growth. Will imports continue on an upward trajectory or will government intervention and the projected rise in domestic coal output help to rein in imports? To follow the debate, make sure you attend CoalMint’s 2nd Asia Coal Outlook & Trade Summit in Bangkok, Thailand, on 24-25 April, 2023.

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