Can Covid resurge sap the coal story?

Sumit Maitra & Tamajit Pain

The return of the Covid pandemic in a mutated and deadlier form is testing the resilience of the recovery of Indian economy which has just started to gather steam.

The country used the reset triggered by the first wave of the pandemic to rework the way India’s core sector was being steered bringing in coal at the forefront of the resurgence of the economy by opening up the coal mining sector as part of the larger Atma Nirbhar Bharat initiative.

Launch of commercial coal mining came along with unshackling of coal marketing by Coal India. Many of the restrictions on the sale and allocation of coal to power as well as non-power sectors were removed.

With the pandemic rearing its ugly head once again, the path that the government have chosen, on the economic front, would surely be tested.

There is disruption in supply chain due to lockdown announced in various states as the coronavirus cases keep rising. Several states have announced stringent restrictions, including night curfew. The government is even mulling a complete lockdown if cases continue to grow exponentially. States like Maharashtra, Uttar Pradesh, Punjab and Chhattisgarh are under lockdown and economic activities are severely affected.

The current situation looks grim with even functioning of the Coal Ministry being impacted. With a large number of officials in the ministry getting infected in recent days, they are either on home quarantine or admitted to hospitals, which has forced the Coal Ministry set up a monitoring cell to help ministry officials cope with the crisis.

In this cover story we look at the early trends that are emerging that would signal the way the coal story would play out in 2021.

Electricity demand falls for the first time in 35 years

India’s power generation fell 0.2 percent in FY21 compared with the previous year, the official data showed, mainly due to the imposition of lockdowns which led to a drop in electricity production for six consecutive months till August 2020. Demand has picked up since.

Power demand slowing down in April

Power consumption trend is not only an indication of demand for coal but also a good proxy for industrial activities.

Compared with previous year, there appears to be a surge in demand (energy met data) for power with 23 percent growth in March and 47 percent rise in April till 20th.

Short-term power prices surged steeply in March with the average price of electricity in the DAM (day-ahead market) on the IEX power exchange during the month rising 20 percent to Rs 4.07 a unit from Rs 3.39 a unit in February.

But this growth figure is misleading as current year’s demand is being compared with a low base of 2020 when lockdown was in effect, power sector analysts said.

When viewed on a two-year compounded growth rate basis, the rise is 4-5 percent in March and April against national demand growth of 5-6 percent in FY18-19.

However, an analysis of regions/states and a comparison with last available demand mix (FY18 data for industrial-agri-retail demand) gives interesting insights.

CIL Chairman Pramod Agrawal chairing an online meeting to review Covid pandemic preparedness of medical facilities in its hospitals across 8 states in India.

Power demand (energy met) data till 20th April is showing signs of a slowdown in the North, with only 1 percent CAGR against 5 percent in March of 2019, 2020 and 2021. Likewise, western states of Gujarat and Maharashtra also have slower CAGR of 4-6 percent in April as compared with 7-8 percent in March of this year.

“Based on above data we believe industrial activity appears to be impacted by recent Covid-19 led restrictions, while we await the monthly demand data for more insights,” an analyst with JM Financial said.