Colombian coal powering its way into India amid COVID-19 crisis

COVID-19 crisis has led to changes in trade dynamics of various commodities and one such notable switch observed is in case of Colombian thermal coal entering India especially since Mar'20.

The vessel line-up data with CoalMint reveals that starting March till the first week of June about 2.33 mn t thermal coal from Colombia has entered India with the majority coming in western ports of Mundra and Kandla. During same period last year, the presence of Colombian thermal coal in the Indian market was negligible.

Further analysis shows that the power sector was the main buyer of Colombian coal with a percentage share of 63% in total imports followed by the traders.

Why is Colombian coal coming to India?

Colombia's key coal destination is Turkey and the country's power demand has fallen considerably in last few months due halting of industrial activities amid COVID-19 led lockdown.

Turkey is focusing more on renewables for electricity generation, as about 66% of its electricity had been generated from renewables in the first five months of 2020, up by 4% y-o-y basis.

Moreover, Turkish power plants have an option to buy coal from Russia, which is conveniently located to promptly deliver supplies from Black Sea or Baltic ports. In past few months, Russian coal has become quite competitive in terms of prices due to lackluster global demand and a fall in freight rates.

Colombia's other long-term coal trading partners, which include Brazil, Mexico, South Korea, U.S., and a number of European countries also observed a drop in average coal imports in the last 3-4 months due to reduced power demand. Moreover, countries in Europe and South Korea are intentionally focusing on lesser coal usage for electricity generation as a part of environmental concerns.

Who is buying Colombian coal in India?

As can be seen in vessel line-up data, power plants in the west coast opted for the majority of Colombian thermal coal imports for the period mentioned above.

India usually imports its coal requirements for the power sector from Indonesia. However, Colombian coal is also considered to be suitable for power generation given its low-ash content. Usually, Colombian coal competes with high-CV Australian coal in the Asia-Pacific region. Now amid the significant fall (about 43%) in freight rates for capsize vessels between Colombia and India in last three months, buying Colombian coal had become an attractive option for buyers in India.

Outlook

With U.S. and Europe discouraging coal usage and Asia becoming the key coal export destination, there are chances that India may see Colombian coal imports at regular intervals.

As traditionally the longer voyage times have made Colombian exports into Asia undesirable, a key factor that can contribute to deciding the fate of Colombian coal in India is the freight rates.

Also, Turkey has removed its lockdown restrictions and industries are scaling up their operations. With this power demand in the country would increase and so does their coal requirement. Resulting which Colombian sellers will once again focus on Turkey.

Apart from this, with the Indian government working on import substitution of coal to promote domestic coal use, the outlook for imported coal looks a bit hazy at present.