Indian thermal coal imports on upward trajectory despite rising domestic production. Know why?

Indian coal import, particularly of thermal grade, is showing no signs of slowing down despite the country making consistent efforts towards augmenting domestic coal production to bolster its energy aspirations.

As per data with CoalMint Research, thermal coal imports are projected to grow at 15% y-o-y to 17.24 million tonne (mnt) in May 2023. Barring March, a strong double-digit growth in imports was recorded every month during January-May period.

The quantum of imports have been to the tune of 14-17 mnt (steep rise seen in the months of March-May), which is comparatively higher than the average of 13.5 mnt assessed for CY22.

In total, imports of thermal coal have increased by 18% y-o-y to 70.03 mnt during January-May, 2023 as against 59.42 mnt in January-May, 2022.

This comes at a time when domestic coal miners had attained an all-time high production in FY2022-23. Continuing the streak, mining major, Coal India Ltd (CIL), has made a bright start for the new FY24 by maintaining 8% growth in April.

Even in May, production by the miner is growing, as it has produced 45.83 mnt of coal during 1-24 May maintaining a robust growth of 9% y-o-y.

Higher imports from Russia, Mozambique

Global thermal coal trade patterns are gradually settling in tandem with reduced risk associated with European energy supply amid adequate coal and gas stocks. This followed supply disruption emerging from the Russia-Ukraine war, post which the European nations had targeted non-Russian markets.

In addition, China resorting back to Australian coal purchases post lifting of ban has also worked in favour of increased cargo availability from the non-traditional markets.

As a result, Indian buyers have increased purchase from Russia and Mozambique which offered material at cheaper prices. Besides, uptick in sourcing from US and Australia has contributed to the import growth.

Meanwhile, purchases from the traditional coal markets---Indonesia and South Africa-- have remained largely stable in January-May, 2023 period.

Volatile prices simulate higher buying

Thermal coal price movement has followed a declining trend due to increased production and prevailing warmer weather. This scenario has simultaneously encouraged Indian buyers to bolster their purchases of imported coal.

Prices of South African 5500 NAR material are assessed at $88/t FOB this week, a sharp decrease of $132/t from year-ago levels. Similarly, Indonesian 4200 GAR coal prices have dropped $20/t y-o-y.

Large-scale end user industries including sponge and cement plants have taken this opportunity to restock adequate material ahead of the monsoon season, especially when there is improved availability of South African coal.

The steady decline in global prices has also pushed imported coal-based (ICB) plants to replenish their inventory as they gear-up to scale generation volume in the summer following government's mandate.

At the same time, several small-scale traders are actively procuring material recovering from the set-back induced from the higher prices seen last year.

Easing domestic coal supply

The untimely rains weighed down on electricity requirement during the ongoing summer. This ease in demand from power sector has helped CIL to allocate additional volume for e-auction sales resulting in a steady fall in bid prices.

In the recent auction conducted by South Eastern Coalfields Limited (SECL) in May, the entire volume was booked at an average realisation of INR 1,786/t, garnering a premium of 69% over the notified price.

Notably, the premium has dropped for the fourth consecutive month. In May, 2022, it was recorded at 495%.

The buyers procuring at much cheaper rates in domestic auctions are thus left with adequate cash to spend on material procurement overseas.

Concerns hang over the power demand situation

India's power demand has started to rise amid scorching heatwaves, recovering from the spell of untimely rains which had curtailed electricity requirement in April.

As per government data, peak power demand that was met was recorded at 221.076 giga-watt (GW) on 17 May, 2023. This was an all-time high and the highest supply in a day in this fiscal year. The peak power supply in the last fiscal was recorded at 207.23 GW in April 2022.

As a result, coal-based power generation has increased by 4% y-o-y to 3,447 MU/day during 1-24 May, 2023.

There are strong possibilities of a further rise in power demand which may force utilities to bolster imported coal purchases in order to ensure smooth operations not only in summer but also for the monsoon season where supplies are generally impacted.

In this regard, India's largest power producer, NTPC, has already floated series of tenders covering its quota of imported coal requirement under government's mandate. Also, given the significant bearing of power sector on the domestic coal supply, the non-power sector have pushed for higher imports.

Outlook

Demand for imported coal is expected to remain strong in the near-term. As per market sources, European buyers are considering to tap the Asian market to resell their cargo, which may further improve supplies thereby increase chances of higher imported material arrival into India.

However, development emerging from higher build-up inventory at power plants and mines would dampen the requirement going forward.

At present, thermal coal stockpiles at Indian ports have risen to the highest at 15.92 mnt towards the week ending 20 May, up 22% from the year-ago level, as per CoalMint data. This would put further pressure on the port-side offers.