India's non-coking coal imports drop marginally in CY'24. Will downtrend continue in CY'25?

*Imports reach around 173 mnt as against 175 mnt in CY'23

*Surge in domestic output, higher auctioned volumes weigh on imports

*Imports from South Africa up 15% y-o-y on higher DRI production

Morning Brief: India's imports of non-coking coal, used in thermal power generation and also in the industrial sector, declined 1.3% y-o-y in CY'24, as per latest data available with BigMint.

Imports of non-coking coal stood at around 173 million tonnes (mnt) in CY'24 as against over 175 mnt in the preceding year. After successive years of high imports, India's coal imports seem to have finally hit a downward trajectory, although whether the trend will continue is anybody's guess.

The sharp surge in power demand may just propel higher imports, going forward, despite record domestic production.

Dynamics of non-coking coal imports

*Higher domestic coal production: India's coal (coking & non-coking) production edged up by over 7% to more than 1 billion tonnes compared with 969 mnt in CY'23. CIL's subsidiaries, especially MCL and SECL, are on the pathway to achieving record surge in production, thereby increasing the availability of domestic coal in auctions. Higher production by the captive producers and operationalization of mines post successive rounds of commercial block auctions have also boosted domestic production.

*Policy tweak boosts domestic auction volumes: In a major boost to domestic coal availability, CIL has reduced the Earnest Money Deposit (EMD) for its e-auctions from INR 500/t to INR 150/t. This decision aims to boost participation and competitiveness, as e-auction premiums have dropped significantly from 252% in FY'23 to 47% in FY'24. By lowering entry barriers, CIL seeks to stimulate bidding activity, improve price realisations, and enhance market dynamics.

*Increased thermal, renewable energy generation: Imports of coal remained rangebound because despite higher electricity consumption y-o-y, India's generation of thermal and renewable electricity edged up. Data shows that thermal power generation increased over 5% y-o-y to 13,61,433 GWh in CY'24.

On the other hand, total generation from renewable energy sources, including large hydro, rose to 287,384.14 million units (MU) in April-November 2024 (8MFY'25) compared with 264,310.99 MU in the same period of last fiscal, as per government data, which shows an increase of 9% y-o-y.

*Higher imports from Indonesia, South Africa: The imported coal-based power plants have a government mandate to blend imported coal till February 2025, a deadline which has been extended two to three times in CY'24. Higher power demand saw imports of Indonesian thermal coal used in electricity generation to increase by around 5% y-o-y.

On the other hand, South African coal imports rose by 15% y-o-y on higher sponge iron production. BigMint data shows that domestic sponge iron production exceeded the level of 2023 in the first 11 months of CY'24 largely due to higher demand from steel production.

Outlook

The mandate on imported coal-based plants related to blending of imported coal is likely a result of the government's proactive approach to forestall the possibility of any shortfall in supply amid surging power demand instead of any real supply crunch. Higher domestic production and increased availability in CIL auctions have been largely successful in containing imports of non-coking coal.

That said, it is important to note that India's non-coking coal imports have shown a marginal decline for the first time in many years, especially at a time when the government has revised the GDP growth rate for FY'25 at 6.4% (down from 8.2% in FY'24), which happens to be the lowest rate of growth in four years.

Global inflation and high capital costs, subdued economic activities during an inordinately long general election cycle, lack of growth in exports due to declining global demand and its impact on domestic manufacturing were some of the key reasons why coal demand did not quite show the anticipated surge which has been observed over the last few years barring the pandemic period.

Therefore, it is too early to say that coal imports will henceforth remain in check due to the uptick in production and better availability of domestic coal.