Global Coal Market Shrugs Off India’s Reduced Imports

While India’s coal imports have dropped 12% over the last three years, as the Modi government pursues a domestic strategy, they have picked up in recent times and are likely to continue to rise.

New Delhi: The international coal market is hardening on strong Chinese demand, brushing off the impact India was projected to have as a result of it reducing dependence on the imported dry fuel.

The global rise, surprisingly, comes even though the 13.6 million tonne gain in China’s imports during January-July 2017 has not been enough to offset the 16.3 million tonne decline in India’s purchase of coal from the overseas market.

The Indonesian coal market, which is the main source of imported fuel for Indian power plants, too remains ebullient, proving wrong those who predicted an imminent end to the boom in the Southeast Asian country’s coal sector.

The Indonesian government’s benchmark price for thermal coal has risen by more than 25% since June this year on strong Chinese demand for the dry fuel. The benchmark Indonesian thermal coal price in November is 12% higher compared to the same month last year.

This despite India continuing its focus on increasing domestic coal production to reduce coal imports. Moreover, India buys low-grade thermal coal from Indonesia which can be blended with higher grade coal before burning. In contrast, China majorly sources higher-quality of coal from Australia and South Africa, but it has now already started importing low-sulphur Indonesian coal, said analysts.

Indonesian government’s monthly benchmark thermal coal price

Month (2017) Price ($/tonne)
June 75.46
July 78.95
August 83.97
September 92.03
October 93.99
November 94.80

Source: Indonesian government

India’s coal imports have fallen by about 12% between 2014-15 and 2016-17, partly due to increased domestic production and partly because of weak electricity demand. However, data compiled by mjunction show that India’s coal imports stood at 242.4 million tonne in 2014-15 , far higher than the official estimate of 218 million tonne.

Anyway, the falling trend continued in the April-June 2017 quarter, with coal imports registering 8% decline compared to the same period previous year. The coal import during April-June 2016 was 57.38 million tonne.

India overtook China to become world’s largest coal importer in 2015. However, it lost the position to China in 2016.

China’s demand for imported coal remains buoyant in 2017 too due to domestic shortages. China has shut down inefficient coal mines in sharp contrast with India which is focusing on enhancing production to end dependence on imported dry fuel.

Energy experts said coal prices are currently being determined by China’s coal mining policies which in turn keep changing depending on international prices. The dragon consumes more domestic coal when international coal prices are high. When global prices fall, it restricts domestic production, forcing utilities to go for imports.

Indonesia’s total coal exports are projected to hit 370 million tonne in 2017, marginally up from 365 million tonne in 2016. Meanwhile, Indonesia’s overall output is expected to reach 479 million tonne in 2017, rising from 459 million tonne the previous year.

Another factor supporting Indonesian coal price is China’s new-found love for the Southeast Asian country’s dry fuel, which has relatively low-sulphur content. Analysts said China is replacing its high-sulphur coal from local mines with low-sulphur Indonesian coal to curb air pollution. As per available data, China imported coal worth $1.68 billion during January-September 2017, an impressive of 63% over the same period last year.

India’s coal imports in recent years

Financial Year Coal import (mt)
2014-15 217.78
2015-16 203.95
2016-17 190.95

Source: Ministry of Coal, ‘mt’ means million tonne

Coal minister Piyush Goyal has been saying that by 2017, apart from coastal power plants, India should not need to import thermal coal.

However, it is the world coal market that has been vindicated in its projection of India’s demand for coal, not Goyal. Facing domestic coal shortage, Indian power plants have started ramping up import of the dry fuel. Coal imported for thermal power plants during the month stood at 1.60 million tonne, sharply up from 0.18 million tonne in the corresponding period previous year.

The spurt in India’s demand for thermal coal augurs well for the strength in the Indonesian coal price.

Meanwhile, the Supreme Court judgement on Wednesday upholding the ban on use of petroleum coke in and around New Delhi does not bode well for the Narendra Modi government’s plan to cut coal imports.

The ban, covering Rajasthan, UP and Haryana, came into effect on November 1 as air pollution reached dangerous levels. Petroleum coke is a cheaper but dirtier fuel. As per one estimate, it emits 11% more greenhouse gases than the dry fuel.

Analysts said rising pollution in other Indian cities could lead to a countrywide ban on use and imports of petcoke. Environmental activists are already clamouring for such a ban.

India’s annual demand for petcoke has nearly doubled over the past four years to more than 27 million tonne.

As per data compiled by the Union health ministry, respiratory issues killed about ten people per day in 2016-17 in the NCR. Cement industry accounts for the bulk of petcoke consumption in the country.

Analysts said cement companies are looking for an alternative to petcoke, and all of them are scrambling for North American coal. India’s coal imports from North America hit 2.1 million tonne in October, quadrupling from a year ago. Coal import from the region during November 1-20 is estimated at about 1.5 million tonne.

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