Contents 19 Thermal coal offers move in narrow range in volatile trade 22 Seaborne coking coal offers ease marginally 23 India’s February coal imports up 24% y-o-y 24 CIL’s coal production at 607 mt in FY19 25 CIL’s e-auction allotment down 14% in FY19 26 SCCL achieves 4% output growth, 5% jump in despatches 28 Seaborne coking coal prices may average $185/t in CY19 30 Coal stock at TPS up 18.17% y-o-y 31 India’s cement production surges 15% till Feb 36 India’s sponge iron production up 8.3% in FY19 37 Corporate 39 Traffic handled by major ports up 3% in FY19 40 Indian Railways’ coal handling up 9% y-o-y in FY19 41 KoPT in capacity augmentation mode 45 Russia’s coal production up marginally, exports down till March 46 US coal production estimated to have decreased 2% in 2018 47 China’s thermal power growth bodes well for coal’s future 50 Chinese coal story mired with controversies 53 India on LiuGong’s radar as export hub for excavators 60 E-auction 61 Port data
4 Coal Insights, April 2019
6 | COVER STORY Surplus surprise
CIL’s coal production up to a record high, but is this a temporary phenomenon?
16 | Cover Story Show me the coal Private gencos and non-regulated sectors lament the step-motherly attitude of the miner
34 | Feature
Inadequate domestic coal supply hurting paper industry Paper industry is heavily dependent on imports for its two major raw materials, steam coal and wood pulp
43 | Expert speak
The endemic coal shortage – causes and remedies Creating additional production capacity for 500 mtpa coal at earliest holds key to economic prosperity
55 | Interview
‘Indian mills should adopt JSM strategy of joint coal procurement’ Arun Jagatramka, Group Chairman, Gujarat NRE Coke, opens up on coking coal & coke market in India
Cover Story
Surplus surprise CIL’s coal production up to a record high, but is this a temporary phenomenon? Coal Insights Bureau
6 Coal Insights, April 2019
Cover Story
A
March blitzkrieg in coal production has turned all the odds in favour of Coal India Ltd (CIL), mitigating the prolonged scarcity of the fuel in the thermal power sector and creating a surplus for other consumers to take heart from. This, coupled with a healthy growth in output by other miners (read Singareni Colliers Company and the captive blocks), has allowed India’s coal production to buck the falling growth trend seen in the last 3 years. But still, industry veterans see this only as a temporary phenomenon and they caution that the situation may not sustain for more than a few months if the factors determining demand change for the better. Coal India’s production grew by 9.6 percent year-on-year to reach 79.2 million tons (mt) in March 2019, the highest-ever monthly rate while despatches grew 8.2 percent y-o-y to 59.7 mt in the month under review. The miners slogged hard to achieve a daily strike rate which was 23.3 percent higher than that achieved in February. For the full financial year of 2018-19 (FY19), production grew 7 percent y-o-y to 607 mt, while despatches increased 4.8 percent to 608 mt. “The 7 percent growth in coal production
during the period is almost a three-fold increase compared to last fiscal’s output growth of 2.4 percent. CIL scaled a new peak in production in March, producing 79.19 mt – the highest so far in a month since inception. In doing so, the PSU coal mining monolith clocked highest-ever production of 3.14 mt in a single day,” Coal India said in a statement. About 19.5 mt were added to the inventory in March, taking the closing stock to around 55 mt, thus not only allowing the PSU to recoup the slow run-rate of the earlier months, but also set a strong base for despatches growth over the coming months. “At the end of FY2019 not a single power station is in the critical or super-critical list of CEA for want of coal. At the end of FY2018 there were 28 power plants in critical mode. With a total combined stock of 84.41 mt at power plants and pitheads put together there is sufficient coal in the system to meet the demand of the country,” Coal India said. Among the subsidiaries, production growth was the strongest in Eastern Coalfields, Western Coalfields and South Eastern Coalfields. Mahanadi Coalfields, the largest subsidiary by volumes, registered production
India's coal production and growth
800.0
600.0
400.0
200.0
0.0
8% 2014-15
5% 2015-16
3% 2016-17
Production (in mt)
3% 2017-18 Growth %
Note: Figures for March 2019 are estimated based on time series data Source: Ministry of Industry, GoI
7% 2018-19
growth of just 0.8 percent due to some adverse conditions. Coal India’s supplies to the power sector grew 7.5 percent y-o-y to 488 mt in FY19 with stocks at power plants going up to 18 days, easing supply pressure. These encouraging headline figures, however, do not reveal the story of crisis heard during the year when several power plants went with critically low stocks and Coal India was forced to divert supplies from unregulated sectors like cement, steel and aluminium to the state-run power utilities. With the onset of summer of 2018, there was a surge in demand for electricity from April onwards, which coincided with the rise in global coal prices. In April 2018, electricity generation was more than what was programmed which led to a more than anticipated increase in demand for coal. ln order to avoid possible shortages of coal at thermal power plants, wherever it was operationally feasible, out of turn coal allotment was made to state and central PSU generation companies. Lack of availability of railway wagons added to the woes of coal users. Supplies of wagons were rationed with priority given officially to the power sector at the expense of the unregulated but critical coal consuming industries like cement and aluminium. In May, Mahanadi Coalfields even issued orders to halt deliveries altogether to all non-power customers but later withdrew the notice after receiving feedback from consumers. In August, 11 out of 117 power plants that have coal linkage pacts with Coal India, were in critical or super critical condition, with stocks of less than 6 days against the ideal situation of 21 days. The extent of the crisis can be gauged from the extent of jump in prices at the electronic auctions conducted by Coal India. In September, spot auctions prices were 102 percent of the notified prices paid by the power sector in September, according to data submitted by Coal India to the ministry. During that month 2.58 mt was put up for spot-e-auction against 3.05 mt in September of 2017 when prices were at 67 percent premium over the notified prices. For the whole of FY19, coal allocated for spot e-auction was 34.34 mt, down from
Coal Insights, April 2019
7
Cover Story
Show me the coal Private gencos and non-regulated sectors lament the step-motherly attitude of the miner
Arindam Bandyopadhyay
A
mid the joy of accomplishment at Coal India Ltd (CIL) and the relief of having ample coal in state-owned thermal power sector, there is a murmur of resentment among the non-regulated sector (NRS) customers and private sector power plants who quietly bear with their unmet demand for the dry fuel and abandoned expectations. The spring of 2019 brought a huge relief for the Indian coal sector. After nearly 8 months of nonstop clamour of the thermal power sector for increased supply of coal, there was suddenly a complete reversal in the middle of March. For the first time in a long time, there was not a single power plant with a critical or super-critical coal stock position. And the combined stock at their disposal almost doubled to 29 million tons (mt) by March 14, 2019, compared to 16 mt reported for the same period a year ago. The power plants heaved a sigh of relief; so did the government.
16 Coal Insights, April 2019
More than anything else, it was a time for rejoice for the Navaratna miner, CIL, that faced unrelenting pressure from one and all for all these months. And what did the coal behemoth not do to survive this crisis? Firstly, the company aggressively liquidated its stock piled up at pitheads, so much so that the stocks came down to record lows in October to 20.98 mt. By the end of that moth, CIL had liquidated nearly 35 mt of coal stock from 55.50 mt of stock reported at the beginning of the fiscal. Secondly, CIL pulled out all the stops to achieve a 7 percent increase in production and cross
600 mt during the year. In fact, the miner clocked the highest ever production of 3.14 mt on a single day, on March 25. Thirdly, the company diverted coal from its e-auction route to feed the power sector, thereby taking a hit on its margins. Total e-auction offerings was slashed from 160.95 mt in 2017-18 to 99.26 mt in 2019-20. Only in spot auction, the offered quantity was reduced by nearly 34 mt. Also, the quantity offered for special forward auction designated for the power sector was cut down by 22 mt. Along with such desperate measures, CIL took yet another step – diverting coal meant for non-regulated sector – which became a blotch on its otherwise excellent performance sheet. Much in contrast with the 7.4 percent growth in CIL’s coal supply to the power sector, its supply to non-regulated sectors (NRS) dropped by 4.9 percent in 2018-19 (FY19), according to information available with Coal Insights. Total despatch of coal to NRS stood at 120.1 mt in 2018-19, lower than 126.3 mt recorded for the previous year, the data show. A break-up of CIL’s coal despatches show that the increase in total despatch was 27.8 mt in 2018-19, while the same for the power sector was 34 mt. This resulted in a drop of 6.2 mt in despatches to NRS during the year. Also, in terms of rake loading, the numbers reported for NRS showed a decline in 2018-19 over the previous year. The average rake loading for NRS was 25.1 rakes per day in 2018-19, down from 36 rakes per day recorded for the previous year. In absolute terms, there was a decline of 10.9 rakes per day. In contrast, total rake loading and rake loading for the power sector registered a healthy growth during the year under review. Over the last four years, since 2015-16, despatches to the non-power sectors have hovered in the range of 120-126 mt, while
Along with such desperate measures, CIL took yet another step – diverting coal meant for non-regulated sector – which became a blotch on its otherwise excellent performance sheet. Much in contrast with the 7.4 percent growth in CIL’s coal supply to the power sector, its supply to non-regulated sectors (NRS) dropped by 4.9 percent in 2018-19 (FY19)
EXPERT SPEAK
The endemic coal shortage – causes and remedies
Partha S Bhattacharyya
A
ddressing a gathering after inaugurating the Mundra LNG terminal recently, Prime Minister Narendra Modi said: “Energy is essential for development. Paucity of energy does not let any nation come out of poverty. If one needs freedom from poverty, wants financial development and a self-sufficient country, energy is necessary.” Coal continues to be the dominant source of energy in the country. Thus, the statement of the PM is of utmost significance and relevance for determining the causes and remedies of the endemic coal shortage situation. Power generation in India has been suffering on account of coal shortage for more than a decade. An illusory “coal surplus” situation was seen temporarily in 2016-17. Though attributed to a record 9 percent growth in coal production by Coal India Ltd (CIL) in 2015-16, it was more due to financial distress of discoms, restricting their ability to buy power from gencos. This led to lowering of average PLF of thermal plants by 2-3 percent. Since change in PLF by 1 percent impacts coal demand by 10 million tons per annum (mtpa), a lowering of 2-3 percent was good enough to create the optical illusion of coal shortage being converted to coal surplus almost overnight. In fact, more than 50 percent of the record increase in coal production by Coal India Ltd of 42 million tons (mt) in 2015-16, ended up in coal stocks at pithead and power houses, with consumption rising modestly. In contrast, Coal India Ltd, in the current fiscal, has been growing at its best-ever rate of 10 percent, having accepted a daunting target of 652 mt for FY19. Even then the power houses are running on low stocks, quite a few of them critical. The differentiating factor this year compared to 2016-17 is the movement in the average PLF. Instead of lowering, the PLF is rising, though modestly hovering around 60 percent. As a result, coal consumption is rising faster than in 201617, turning the coal surplus situation to coal shortage once again. As the financial position of the discoms
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INTERVIEW
‘Indian mills should adopt JSM strategy of joint coal procurement’
C
oking coal as an input material for steel gains prominence as the majority of steel produced in India is done through the blast furnace route. However, the country is not endowed with this premium coal to the extent required. Thus to sustain operations, Indian steel mills are heavily dependent on coking coal imports from countries like Australia, the US and Canada. This makes coking coal prices an important barometer for profitability of steel mills in India. High coking coal prices contract margins of the mills and thus make timely procurement of coking coal an important strategic objective. In this context, experts are of the opinion that coking coal prices are expected to moderate going forward and are unlikely to sustain at the current high levels. With steel prices sliding from the highs of calendar year 2018 due to trade tensions and a slower pace of economic growth, coking coal prices are yet to follow suit,
Coal Insights, April 2019
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62 Coal Insights, April 2019
Tear along the dotted line
Tear along the dotted line