EDITORIAL Chief Editor Dr Mahul Brahma, Tel: +91 85840 08241, E-mail: mahul.brahma@mjunction.in Editor Arindam Bandyopadhyay, Tel: +91 91633 48016 Email: arindam.bandyopadhyay@mjunction.in Associate Editor Sumit Kumar Maitra, Tel +91 85840 08181, Email: Sumit.Maitra@mjunction.in Editorial Board Alok Srivastava, General Manager, MMTC Ltd Amitabh Panda, Group Director (Shipping & Logistics Operations), Tata Steel Group Anil Razdan, Energy Consultant, Formerly of the IAS, Former Secretary Power & Sp. Secretary Petroleum & Natural Gas, India Anirudha Gupta, Mining & Metals professional and former Director, P&H Joy Mining Equipment India Ltd Ashok Jain, Managing Director, Saumya Mining Ltd Deepak Bhattacharyya, Chief - Horizon 1 businesses, mjunction services ltd Ganesan Natarajan, Former Whole Time Director, Ennore Coke K C Gandhi, Joint President (Material), Shree Cement Ltd Lawrence Metzroth, Vice President – Analysis & Strategy, Arch Coal Inc Sandeep Kumar, Managing Director, Tata Metaliks Ltd Senior Correspondent Ritwik Sinha, Tel + 85840 08234, Email: ritwik.sinha@mjunction.in Balaka Ghosh Chatterjee, Tel + 85840 08190, Email: Balaka.Chatterjee@mjunction.in Analyst Sanjoy Bag, Tel +91 85840 08215, Email: sanjoy.bag@mjunction.in Business Lead Soumitra Bose, Tel: +91 92310 00232, Email: soumitra.bose@mjunction.in Advertising Soudipto Malakar, Tel: +91 91633 48243, Email: soudipto.malakar@mjunction.in Sumit Jalan, Tel: +91 83369 25981, Email: sumit.jalan@mjunction.in Subscription Niladri Kar, Tel: +91 83369 96510, Email: niladri.kar@mjunction.in Email: publication.vspl@mjunction.in Toll free number 1800 41 920 001, press 6 for publication. Design Debal Ray, Sobhan Jas For suggestions, feedback and queries, please write to coalinsights@mjunction.in
Published by: mjunction services limited CIN: U00000WB2001PLC115841 Registered & Corporate Office: Godrej Waterside, 3rd & 9th Floor, Tower 1, Block DP, Sector V, Salt Lake City, Kolkata 700091 Tel: +91 33 6610 6100, Fax: +91 33 4409 1808 Website: www.mjunction.in mjunction believes that all junctionites, customers, suppliers, partners, etc. should practice the highest ethical standards in their daily operations. Report a concern to ethics@mjunction.in
Disclaimer: This document is for information purposes only. The information contained in this publication has been compiled from sources believed to be reliable. Whilst every effort has been made to ensure that the information is correct and that the views are sound, mjunction cannot be made liable for any loss incurred by users of this publication. Readers are requested to make appropriate judgment without any prejudice or compulsion. Copyright: ©mjunction services limited 2017. All rights reserved. No part of this publication (text, data or graphic) may be reproduced, stored in a data retrieval system, or transmitted, in any form whatsoever or by any means (electronic, mechanical, photocopying, recording or otherwise) without obtaining mjunction services limited’s prior written consent. Unauthorised and/or unlicensed copying of any part of this publication is in violation of copyright law. Violators may be subject to legal proceedings and liable for substantial monetary damages per infringement as well as costs and legal fees.
Dear Reader, Imagine this: `1.58 trillion is spent in FY20 to import 247 million tons of coal. The irony is that 197 million tons of this volume is thermal coal, which India produces in abundance. And at this moment of crisis, we are sitting on a stockpile of thermal coal. Replacing such avoidable imports is the theme of this edition’s cover story. Such import substitution is a key strategy of the government, which has already targeted substitution of 100 million tons of coal that is currently imported and can be replaced by domestic supplies. On paper, the strategy looks simple. However, execution is not. Not so different, but different! Quality and price are major challenges. For power plants close to the shore, it makes better sense to import high quality and competitively priced coal at their own time and dispensation rather than getting into long term contacts with Coal India. And with comparatively high freight rates of Indian Railways, Coal India is also at a disadvantageous position before power plants, which are away from the coasts. For Coal India to compete with imported coal, its cost to consumers must be competitive too. For this it has asked the Railways to bring down its freight rates. The Railways, burdened with cross-subsidising passenger trains, is unwilling to do it. This month’s issue analyses these topics in detail. But it’s not only the need to replace imports but also the need to stay relevant that is driving Coal India. Over the next five years, when commercially-mined coal enters the economy at prices dictated by demand and supply dynamics rather than a single seller’s own cost and margin factors, Coal India needs to compete with every merchant miner and also with imports. Many of the global high cost mines are currently being operated at economically unviable cost structures, which are forcing many large miners to start closing down or mothballing or even selling off such mines. With fewer mines and lesser production, global supplies will fall and prices will rise. India, with abundant stocks and competitive cost structures, would be better placed to turn Atma Nirbhar in coal. In these uncertain times, with the pandemic still working overtime in proving wrong our best projections of the new normal, these immortal words by Bob Dylan have found a new meaning in our lives and times. …Don’t speak too soon For the wheel’s still in spin And there’s no tellin’ who That it’s namin’ For the loser now Will be later to win For the times they are a-changin’
Chief Editor
Articles are invited from industry partners for publication in Coal Insights. The selection of articles is subject to scrutiny by the editorial desk and its decision will be final and binding. The copyright of the published articles will be held by the publication. Coal Insights, August 2020
3
CONTENTS 14 Thermal coal offers remain range bound in August 15 Seaborne coking coal offers fall in August 16 India’s June coal imports down 36% on year 17 CIL’s coal production down 3% in July 18 SCCL’s coal production down 44.6% in July 19 Coal mMinistry okays CIL plan for 100% supply to thermal units 22 India consumption supporting global met coal demand 24 Tangedco to shift supplies from MCL to SCCL 26 Cross-subsidy prevents Railways from offering discounts to CIL 36 Power capacity addition in June at 270 MW 37 India’s cement production down 38% in Q1 38 July sponge iron production down 6.8% on month 39 Coal-fired power generation at 4-year low 44 Global coal-fired power drops 8% in H1 as renewable gains 47 US coal production estimated at 502MMst in 2020 48 Traffic handled by major ports down 18% till July 49 Indian Railways’ coal handling down 26% in April-July 50 Coal gasification: Impact of government initiative 54 Tata Steel eyes replacing coking with thermal coal 56 Tata Power focuses on consumer RE biz 58 Corporate Update 60 Government Update 62 E-auction
4 Coal Insights, August 2020
6 | COVER STORY
Demand-supply dynamics to keep imports at bay A critical look at factors that will keep shipments low in coming days
20 | FEATURE Commercial coal block auction delayed Mine list to shrink further on growing concerns for ecological impact
29 | FEATURE Coal India to appoint global sampling agency Sample testing costs to be divided on 50:50 basis
34 | FEATURE
NTPC eyes 15 mt coal output in FY21 Work on Kerandiri and Chatti Bariatu to begin soon
42 | INTERNATIONAL
BHP to exit thermal coal on low returns, sticks to coking Global mining major has decided to exit thermal coal while staying with coking coal
COVER STORY
Demand-supply dynamics to keep imports at bay Sumit Maitra
6 Coal Insights, August 2020
COVER STORY
A
s Indian economy gets unshackled from the lockdown, though in a gradual manner, comfortable stock at power plants and subdued demand for electricity create enabling condition for lowering of thermal coal imports being targeted by the government in a new era of Atma Nirbharata or the sense of selfsufficiency. While power demand declined sharply during January-June period, domestic coal output was quite resilient resulting in partial import substitutions. With lower demand and generation, the capacity utilisation rate or plant load factor of thermal power plants during April-July dropped to multi-year lows of 48.3 percent, which was 13 percent lower than a year ago. With an increase in generation, the capacity utilisation improved in July from the lows of 42 percent in April. There are hurdles to achieve this goal of import substitution namely significant drop in international coal prices and global supply glut which is forcing many mines to work in uneconomical ways, creating the prospect of cheaper dumping at the expense of domestic coal. While Coal India has been providing concessions to buyers, fuel prices for power
plants, being largely fixed in the form of notified prices, are unlikely to get readjusted to reflect changing market dynamics. And Coal India being a near-monopoly supplier to the power sector, would refuse to revise its prices for its major customer, the power sector, to protect its margins. Things would be different once commercially mined coal is made available to domestic consumers and Coal India is forced to play along with numerous other merchant producers. But that reality would get realised at least five or six years after commercial coal auction is executed successfully. Till then Coal India would only need to compete against import prices. Coal-fired power generation is expected to retain competitiveness in India (where the coal fleet is only around 10 years old on average) and other populous, low income emerging markets, for a much longer time. Large, low cost mines supplying energy coal to seaborne markets will continue to be able to generate decent margins. Global thermal coal price correction reflects demand shock
Asian coal prices are down by a steep 25 percent year till date and analysts are of the
Thermal coal prices (NEWC Index)
“Indian demand for imported thermal coal has decreased sharply due to lockdowns imposed to deal with Covid-19, and a drive by Government to get industry to consume domestic coal”: New Hope Corp view that prices are likely to stay subdued at least till the end of 2020 as coal producing countries are stuck with their own unsold stocks. Prices have reached closed to five-year lows now hovering at $50 a ton. The Newcastle coal prices are down 24 percent since January due to reduced electricity demand in Australia’s key coal markets. Thermal coal demand from India as well as Japan, Korea and Taiwan declined over the first half of the year in response to Covid-19, as utilities in these markets worked with lower Plant Load Factor rebalancing their generation and coal procurement with demand, and more competitive gas pricing. “Indian demand for imported thermal coal has decreased sharply due to lock-downs imposed to deal with Covid-19, and a drive by Government to get industry to consume domestic coal. Vietnam has been a bright spot throughout the first half of 2020, with record coal imports,” said officials of New Hope Corp of Australia. The 6000 kcal/kg FOB Newcastle index averaged around $61 a ton over the first half of 2020 with prices ranging between a high of around $74/t to a low of around $50/t. That is below the 2015/16 trough in real terms.
Coal Insights, August 2020
7
FEATURE
Commercial coal block auction delayed Mine list to shrink further
Coal Insights Bureau
C
ommercial coal mine auction has been delayed as expected with due date for Expression of Interest pushed back by over a month to September 29 from earlier August 18 with auction being planned in the later part of October. The approval of successful bidders is expected by November. The list of mines on offer is also likely to get reduced further with Maharashtra government again demanding removal of a block – Makri-Mangli II - located in a Tiger Reserve. Bander block in Maharashtra was first taken off the list of 41 mines following which three blocks in forest areas of Chhattisgarh were identified to be removed.
20 Coal Insights, August 2020
Coal Minister Pralhad Joshi has accepted suggestion of Chhattisgarh government to replace five mines with three new mines on environmental and livelihood concerns in Hasdeo Arand forest area. Of the nine coal blocks on offer in Chhattisgarh, five are in Hasdeo Arand: Morga -2, Morga (South), Madanpur north, Shyang, and Fathehpur (east). Efforts to auction off blocks in a hurry, many of which are in eco-sensitive areas is now being criticized by a section of environment and climate change watchers. This would jeopardise participation of any major global mining companies as they would like to stay away from such controversies. Also, government’s move to dilute environmental norms prior to coal mine
auction by issuing draft Environment Impact Assessment (EIA) Notification 2020 has received wide spread opposition, Maharashtra government being the latest to criticise it. Union government appears to have realised the situation with environment minister Prakash Javadekar admitting that ‘thousands of responses’ have been received which would be studied before the draft is finalised. Jharkhand, which has been opposing commercial coal mine auction has gained from its hard negotiation with the Centre by extracting assurance of `19,000 crore of coal royalty over next 5 years and another `8000 crore for land acquired. In return, Jharkhand is likely to withdraw its opposition to the auction.
FEATURE
India’s steel mills supporting global met coal demand Sumit Maitra
G
lobal coking coal market is banking on continued demand from Indian steel sector in coming days, which they believe would continue to support demand.
India imports drop
India’s coking coal imports fell to 2.84 mt in June, down from 3.18 million tons (mt) in May, provisional data showed. During the April-June period of the current fiscal coking coal imports by India fell 28.29 percent to 9.25 mt, according
22 Coal Insights, August 2020
to provisional data with Coal Insights. Meanwhile, metallurgical coke import offers declined in July on low demand in China and India. Sufficient supply in China and continuation of lockdown in some regions of India led to low demand and production. Onset of monsoons in India has also hampered production and supplies. However, with government mostly in the unlock mode in India, demand and production is set to pick up by the Q3 FY21, according to analysts. This may lead to higher consumption of steel and steel making raw materials, they observed.
“Demand for Indian mills is currently being supported by reversal of steel trade flow, becoming a net steel exporter to China. This has been an important factor in some of the early resumption of procurement activity for metallurgical coal. Any sudden change in this flow could have an impact on metallurgical coal demand in the short term”: Coronado Resources Metallurgical coke imports by India decreased by 56 percent to 372,076 tons during April-June quarter, compared to 849,381 tons in the corresponding quarter of the last fiscal, according to data collected from 31 ports. Global coking coal miners bank on India recovery
Global diversified mining major Anglo American Plc is hopeful of recovery and growth of Indian steel sector driving the market for metallurgical coal. While for iron ore, expected growth in India and other developing Asian economies
FEATURE
Coal India to appoint global sampling agency Sample testing costs to be divided on 50:50 basis
Coal Insights Bureau
C
oal India will now recruit global coal sample testing agency following continued complain on quality
issues. It has floated tender for empanelment of reputed global level agencies for collection, preparation and analysis of coal samples at loading points. This is one of the first steps to become competitive with the coming of commercially available coal in coming days. Criteria
The coal sample testing agency must have global exposure. “The bidder shall be a reputed global level agency and have successfully executed work of similar nature for clients in minimum two countries apart from India.� Also, bidder must have at least three coal
testing labs in India in its own name with NABL accreditation preferably with lab information management system controls. However, LIMS shall be a prerequisite prior to signing of tripartite Agreement with subsidiaries of CIL and consumers. In case the bidder is a partnership firm, NABL accredited testing laboratory must be in the name of any of the partner of partnership firm or partnership firm itself. Bidder should be accredited for coal scope by National Accreditation Board of Certification Bodies (NABCB) for the third party sampling, testing and analysis of coal. Bidder must have specialised modern equipment/technique/software, as per BIS or equivalent boasting transparency, speed having least human interference. Responsibility of sample tester
The coal supplies by CIL to its various consumers through different modes are
subjected to sampling and analysis as per the prevailing procedure/guidelines, at the Loading/Dispatch Points by Third Party Agencies (BIDDERs) which form the basis for raising the bills. Presently Third Party sampling is being carried out by CSIRCIMFR and QCI. CIL intends to expand its base of Third Party Agencies. Third party agency or the successful bidder shall be responsible for collection, preparation and analysis of coal samples in context of coal supplies to all types of consumers, as per applicable procedure, legislation and guidelines in a transparent and ethical manner from the loading points of subsidiaries viz. CCL, BCCL, ECL, MCL, SECL, WCL, NCL including NEC with their coal producing units / dispatch points spread over in different states of India like West Bengal, Jharkhand, Madhya Pradesh, Uttar Pradesh, Assam, Chhattisgarh, Orissa, Maharashtra etc.
Coal Insights, August 2020
29
INTERNATIONAL
BHP to exit thermal coal on low returns, sticks to coking
Coal Insights Bureau
G
lobal mining major BHP has decided to exit thermal coal assets due to falling and even negative returns while staying with coking coal where margins are still high and are likely to sustain on steel sector recovery, Chief Executive Officer, Mike Henry recently told investors during the half yearly earnings release. “Today, we’ve also been clear about our intent to focus the coal portfolio on higher quality coking coals and to divest BMC (BHP Mitsui Coal), New South Wales Energy Coal and Cerrejon, which are some great assets and they have growth options, but they’re unlikely to compete for capital within BHP,” Henry said outlining company’s decision to exit thermal coal. Cerrejon is one of the largest surface mining operations in the world and mines high quality thermal coal for the export market of about 550 million tons of a year
42 Coal Insights, August 2020
employing more than 12,000 employees and contractors. BMC owns and operates two open-cast metallurgical coal mines in Bowen Basin – South Walker Creek Mine and Poitrel Mine and is 80 percent owned by BHP with Mitsui and Co controlling 20 percent. “These are large-scale and long life assets. They produce good cash flow through-thecycle and have the potential for value growth, including through productivity driven volume growth, further cost reductions and embedded expansion options. BHP is looking at unlocking the value in the assets by selling off, the official indicated. “We see more upside opportunity in the higher quality hard coking coals. Whilst we see thermal coal being used by the world for a long period of time, these being great assets, on balance, there’s less upside skewing in the market scenarios that we run than there is for some other commodities,” Henry said. BHP’s thermal coal exposure comprises
“Demand for seaborne hard coking coal is expected to grow alongside the growth of the steel industry in importing countries such as India, and increasing market share in China for large, integrated mills situated in the major demand centres on the coast.” a very small portion of overall asset portfolio or about three percent of net asset base. BHP owns two assets, a 100 per cent share of the New South Wales Energy Coal asset and a 33.3 per cent stake in the independently operated Cerrejón mine in Colombia.” BHP’s met coal business contributed EBITDA of $1.9 billion, at a margin of 36 percent which would have been better but for a 27 percent fall in price. Why coking coal is a better bet?
The collective need to reduce emissions globally will create advantage for higher quality steel-making raw materials (both in iron ore and in met coal), as steel makers seek to reduce the emissions intensity of blast furnace steel production. Over time, BHP sees premium quality coking coals at an advantageous position given the drive by steel makers to improve blast furnace productivity, partly to reduce emissions intensity. “Demand for seaborne hard coking coal is expected to grow alongside the growth of the steel industry in importing countries
66 Coal Insights, August 2020
Tear along the dotted line
Tear along the dotted line
