India's thermal coal imports rise 13% y-o-y in Jan-Jun'24. Will trend persist in H2CY'24?

*Thermal electricity generation rises over 10% y-o-y in H1CY'24

*Hydropower production falls, solar shows slower growth

*Import trend may not reverse in H2 despite record domestic production

Morning Brief: India's imports of thermal coal reached over 95 million tonnes (mnt) in January-June 2024 (H1CY'24), an increase of roughly 13% y-o-y, as per latest data with BigMint. The country's non-coking, or thermal, coal imports had reached around 176 mnt in 2023.

Indonesia retained its position as the top exporter to India with total shipments assessed at over 58 mnt in H1CY'24, a sharp rise of nearly 30% y-o-y. South Africa, the second-largest source of thermal coal imports, witnessed shipments remaining largely stable y-o-y at around 14.7 mnt, while the US increased exports by 16% y-o-y to over 7 mnt during the period under review.

Mundra port in Gujarat's Kutch district received the largest volumes of imported non-coking coal at over 16 mnt in H1CY'24 followed by Krishnapatnam port at approximately 10 mnt and Kandla at around 6 mnt.

Adani Group companies remained the top importers followed by Agarwal Coal, Tata Power and JSW Steel.

Factors driving coal imports in 6MCY'24

Higher coal-fired generation amid heatwave: Amid a searing heatwave prevailing in vast swathes of the country from mid-April through to June with temperatures touching record highs, the country witnessed its electricity generation rising by over 9% y-o-y to 913.69 billion units (BU) in H1CY'24 compared with 836.829 BU in the same period of last year. In fact, coal-fired generation rose even more sharply by over 10% y-o-y to 678.27 BU during the review period, with the share of thermal in the country's power mix rising to 74% from around 73% in the year-ago period. India recorded its peak power demand (met) of 250 GW on 30 May this year.

Although domestic coal production increased by over 12% during the period, higher imports were meant to create a buffer against potential shortfall during summer.

Large hydropower generation drops: India's power generation from large hydro projects was assessed at 53.76 BU in H1, a decrease of over 9% y-o-y compared with over 58 BU in the corresponding period of last year. Notably, the growth of 7% seen in power generation from renewable sources (mainly solar and wind, excluding hydro) during H1 was slower than overall growth in electricity generation, which reinforced the dependence on thermal generation.

Data shows that solar power generation, too, fell by over 10% m-o-m to 10,741 million units (MU) in June this year. What's more, in contrast to the last five years, growth in solar generation in Q1 FY25 was the slowest - below 12% y-o-y. In Q1FY24, growth in solar generation had been assessed at nearly 30% y-o-y.

Govt mandate on imports: The Ministry of Power extended a mandate on imported coal-based power plants to operate at full capacity until 15 October this year to meet the anticipated high demand for electricity in the summer months, with peak demand expected to cross 260 GW compared with 243 GW last year. So, the imported coal-based power plants (ICBs) had to persist with high imports.

On the other hand, in June, the domestic coal-based plants were directed to continue blending 4% of imported coal till 15 October overturning an earlier order issued in March mandating 6% blending till June. These mandates were issued to offset any possibility of a power shortage which kept driving coal imports.

Indonesian coal prices soften y-o-y: Imported Indonesian coal prices weakened during H1 compared with the same period of last year on largely weak Asian thermal coal seaborne demand, slow economic activities in China, higher domestic production in India and efforts to curb usage of coal in power generation in several South and Northeast Asian countries. Amid weaker demand overseas, Indonesia announced a coal production target of 922 mnt in 2024. The prospect of higher supplies weighed on prices.

Indonesian benchmark 4200 GAR coal ranged within monthly averages of $57-53/t FOB Kalimantan in January-June this year - far lower than $70-85/t FOB levels prevailing in January-April last year. Weakening prices pushed imports higher after weather disruptions in Sumatra and elsewhere ceased after February.

Outlook

Domestic thermal coal production is expected to exceed the billion tonne mark this year after hitting a level of over 903 mnt in CY'23. Moreover, the onset of monsoons from late-June onwards has led to a drop in temperatures and, simultaneously, decline in cooling demand. On the other hand, new renewable power tenders exceeded the target of 50 GW in FY'24, touching nearly 70 GW. These capacities are likely to come onstream during the current year and are expected to eat into the share of thermal generation.

However, domestic coal mining and dispatches are likely to be affected during monsoon and logistical constraints are formidable. Pre-festive surge in power demand, too, is a factor to reckon with in Q4CY'24. Policymakers have their priorities cut out: to ensure that power shortfall is avoided at all costs. Therefore, BigMint believes coal import trends may not reverse significantly in H2CY'24.

4th India Coal Outlook Conference

Will India be able to rein in thermal coal imports in the near term given the exponential growth in domestic production and the government's renewed thrust on logistics and last mile connectivity? Follow the debate at the 4th India Coal Outlook Conference to be organised by BigMint over 22-23 August 2024 in Gurgaon which will feature a brainstorming session on 'Will the government be successful in cutting thermal coal imports in the mid-term - Prospects & Challenges'. Book your seat now.