Coal Insights, January 2021

CONTENTS 13 Seaborne thermal coal offers firm up in January 14 Seaborne coking coal offers rise in January 15 November coal imports down 6% on year 16 CIL’s coal production up 1.1% till December 17 SCCL’s coal production down 30% till December 19 FIMI questions future viability of commercial mines 23 Discom dues cross `1.3 lakh crore in November 25 A year of transition: Looking back at 2020 31 India’s cement production down 7% in November 32 December sponge iron output up 2.3% on month 34 US coal output estimated at 603 MMst in 2021 35 Traffic handled by major ports down 9% till December 36 Railways’ coal handling down 12% in April-December 37 Hydrogen Energy – towards zero emission 43 CESC to restructure distribution biz 44 Tangedco invites MDO to develop Chandrabila mine 46 Corporate update 48 Government update 50 E-auction data 52 Port Data

4 Coal Insights, January 2021

6 | COVER STORY

Coal in 2021: Regaining lost heat Crystal ball gazing into the foreseeable future.

18 | FEATURE Budget 2021 wishlist Industry bodies seek coal duties reduction.

21 | FEATURE Single-window for coal block operations Portal to facilitate mine plan approval.

33 | INTERNATIONAL

Mitsui, Itochu plan coal mines exit Japanese companies ask government to raise RE share.

41 | CORPORATE

“Customer is now the king for Coal India”: Joshi Coal minister chalks out roadmap

COVER STORY

Coal in 2021: Regaining lost heat Sumit Maitra

6 Coal Insights, January 2021

COVER STORY

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he recent upswing in thermal coal prices across the globe goes on to prove that the much maligned black lump has remained the fuel of choice for economies to fire their power plants and factories once again as the world emerges from the Covid-19 pandemic.

Not just power plants, when steel as well as cement factories in Asia and elsewhere resumed working full time to feed the global economy, as it woke up from a prolonged lockdown, it was coal which ignited a thousand boilers and blast furnaces as 2020 came to a close.

Supply and demand in the seaborne thermal coal market have returned, with demand rising due to a severe winter and unlocking of economies in most of the countries.

India is also set to witness growth in power demand as the economy becomes fully operational with vaccination efforts by the government and a fall in Covid counts.

Surging global prices

Prices of South African coal (6,000 kcal/kg NAR) were at $93 per ton FOB as of January 20 as against $91.5 on December 31.

The Australian coal (6,300 kcal/kg GAR) has risen to $85 per ton FOB on January 20 from $81.5 on December 31, according to information available with Coal Insights.

Indonesian coal (5,900 kcal/kg GAR) prices have gone up sharply to $84 per ton FOB on January 20 against $73.5 per ton on December 31 while the 5,000 kcal/kg GAR variety rose to $73.5 from $66 during the period.

Indonesia, in fact, has seen renewed demand for thermal coal from China following the rise in geo-political tension with Australia. This factor coupled with heavy rains that impacted both production and exports of coal, contributed to a surge in Indonesian coal prices, analysts said.

Can prices sustain?

While the standoff between China and Australia over coal consignments continued well into 2021, market watchers are waiting for the end of the month as the fate of

annual supply contracts with Chinese power plants and steel mills would become clearer by then.

Close to 80 percent of Chinese thermal coal demand is served through medium or long-term contracts while the balance comes from spot trades.

China’s spot thermal coal prices recently touched a record high staying above the Yuan 1,000/ton mark.

It was supported by robust reopening of the economy, ban on Australian coal and lower than normal winter temperature in China and elsewhere in December, analysts said. There, however, has been moderate rebound in temperatures across most regions of China in January.

While analysts are mostly of the view that seaborne thermal coal market would remain a bit undersupplied in 2021, supporting prices, some industry participants believe that international coal prices have settled for now.

“International coal prices have risen steeply over the last few months due to strong Chinese demand and weather disruptions.

We expect fuel prices to stabilise over the next six months,” Atul Daga, Chief Financial Officer at Ultratech Cement, recently told analysts during a conference call following the announcement of December quarter results.

There, however, were also expectations that thermal coal prices may continue to remain firm in the international markets.

“During the latter part of the December quarter, there was a strong rebound in pricing and we are increasingly optimistic that underlying market dynamics are supportive of continued improvement in this area,” Paul Flynn, Managing Director and CEO, Whitehaven Coal, said.

In the December quarter, globalCOAL Newcastle Index (gC Newc) coal prices rapidly increased from their August low to average $67/t for the quarter before finishing the quarter above $80/t.

There were price improvements for the lower-grade metallurgical coals late in the period. This was underpinned by the appreciation in the high-grade thermal coal indices.

“International coal prices have risen steeply over the last few months due to strong Chinese demand and weather disruptions.

We expect fuel prices to stabilise over the next six months.” Atul Daga, Chief Financial Officer, Ultratech Cement During the quarter, several factors influenced the thermal coal price indices, including disruptions to thermal coal exports from Newcastle and a colder than usual winter in Asia, creating increased demand.

Overall, seaborne thermal coal prices continue to rise from the low points experienced in August. Supply curtailments coupled with increased energy demand in Asia are supporting the higher price environment, particularly for higher grades of thermal coal.

In China, the arbitrage between domestic and import prices remains above $20/t, notionally supporting the demand for imported coal, and import protocols of China has supplemented its domestic coal production with higher cost coal from alternative sources such as Russia, Indonesia and South Africa.

Additionally, late in 2020, China lifted its total import quota in response to strong domestic demand and an extremely cold winter.

China’s self-imposed restrictions have altered seaborne coal trade flows where, instead of being delivered to China, Australian coal is now finding customers in alternate destinations including India,

Coal Insights, January 2021

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FEATURE

Budget 2021 wishlist: Industry bodies seek coal duties reduction Coal Insights Bureau

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ustoms duties on coking coal, met coke as well as domestic cess on coal need to be cut to make Indian manufacturing sector competitive and Atmanirbhar, industry bodies have told Finance Minister Nirmala Sitaraman ahead of the Union Budget 2021.

Steel sector

Domestic steel makers under the aegis of Confederation of Indian Industry (CII) have sought reduction in basic customs duty on key raw materials like anthracite coal, metallurgical coke, coking coal, and graphite electrode in the upcoming Union Budget.

The non-availability of these items in good quality and quantity hinders the growth of the steel industry, CII said.

CII argued that domestic availability of anthracite coal, the basic customs import duty on which is 2.5 percent, is falling

18 Coal Insights, January 2021

Union finance minister Nirmala Sitharaman before placing Union Budget 2020

which might force steel industry to become dependent on imports.

CII has also suggested cutting import duty on metallurgical coke to 2.5 percent from 5 percent now.

“Low ash metallurgical coke, HS Code 2704, is a key raw material in steel accounting for almost 46 percent of the total raw material cost. Reduction in duty will help the domestic steel industry to be costcompetitive,” it said.

The industry body has also suggested removing 2.5 percent import duty on coking coal as domestic supply of coking coal is insufficient and most of it has to be imported.

“The reduction will also help to rationalise the duty structure on met coke, which is the end product of coking coal,” it added.

CII also sought greater availability of graphite electrode, a major consumable for steel sector by abolishing import duty of 7.5 percent.

With 60 percent of domestic production being exported, domestic steel makers are forced to import. “High duty merely increases the cost burden,” CII said.

Aluminium sector

Aluminium is a power intensive industry as power accounts for almost 40 percent of the cost of production.

The cess on coal at `400 per ton alone raises the aluminium cost by $64 per ton, said industry representatives.

Royalty and taxes as a percentage of exmine coal cost in India is among the highest in the world at around 25-31 percent as against 7 percent in Australia and 12 percent in Indonesia.

“Taxes on coal in India raise the price by about 24 percent. This affects the competitiveness of the domestic aluminium industry. The industry therefore expects reduction in coal cess and taxes on coal,” a pre-Budget report by Care Ratings said.

FEATURE

Government launches single-window facility for coal mine operations

Union home minister Amit Shah inaugurating Single Window Clearance Portal for mine plan approval.

Coal Insights Bureau

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he Ministry of Coal has launched a Single Window Clearance Portal for mine plan approval that facilitates grant of clearances and approvals required for starting a coal mine in India.

Union home minister Amit Shah launched the portal recently in the presence

of coal and mines minister Pralhad Joshi at an event organised in New Delhi to execute agreements with successful bidders for India’s first ever commercial coal mine auctions.

Presently, about 19 major approval or clearances are required to be obtained before starting a coal mine in the country.

Some of these clearances include

approval of mining plan and mine closure plan, grant of mining lease, environment and forest clearances, wild life clearance, clearances related to safety, environment, rehabilitation of project affected families, welfare of workers etc.

These approvals or clearances are granted either by Union or state governments. In the absence of a unified platform for grant

Coal Insights, January 2021

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FEATURE

Discom dues cross `1.3 lakh crore in November Up 28% since April

Coal Insights Bureau

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ues of power distribution companies (Discoms) payable to generators have been mounting, and have touched `1.31 lakh crore in November 2020, which is 28 percent higher than April 2020 levels.

The outstanding dues were the highest for the Discoms of Rajasthan (`40,229 crore), followed by Tamil Nadu (`21,825 crore) and Uttar Pradesh (`14,329 crore). These three states accounted for 58 percent of the total outstanding dues.

The other states with sizeable dues are Karnataka, Maharashtra, Telangana, Jammu

Payments by Discoms November 2019

November 2020

“Discoms dues are at a high of 9x monthly bill. Covid-19 led demand destruction has stretched payment/ billing cycles for Discoms. Recent relief package of `1.2 trillion to Discoms is expected to diffuse this situation by 4Q FY21.” JM Financial & Kashmir, Jharkhand, Andhra Pradesh, Madhya Pradesh and Haryana.

“Discoms dues are at a high of 9x monthly bill. Covid-19 led demand

State-wise Discom dues as of end November 2020 Statewise dues Raiasthan

40229

Tamil Nadu

21825

Uttar Pradesh

14329

Maharashtra

7709

Karnataka

7563

Telangana

6312

Jammu & Kashmir

6086

Jharkhand

5331

Madhya Pradesh

4114

Andhra Pradesh

3699

Harvana

3469

Total Source: PRAAPTI, JM financial

November 2020

1,30,676

Source: PRAAPTI

Coal Insights, January 2021

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INTERNATIONAL

Mitsui, Itochu plan coal mines exit

Coal Insights Bureau

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everal Japanese conglomerates like Mitsui and Itochu are selling off their coal mine assets across the globe.

This comes at a time when around 90 Japanese companies have called on the Japanese government to raise the share of renewable power in the overall energy mix by 2030.

Itochu charts exit strategy

Itochu, which holds interests in five coal projects in Australia, has announced its exit from thermal coal assets as part of its medium-term plan, which will be effective till 2024.

The strategy talked of “promoting decarbonisation by fully divesting from thermal coal mining assets”.

The coal mine projects include: Whitehaven Coal-managed Maules Creek mine; 10 percent interest in the Glencoremanaged Ravensworth thermal and coking coal project, 12.5 percent stake in Wandoan thermal coal joint venture project

with Glencore and SCAP Wandoan in Queensland.

Mitsui to exit Mozambique coal mine project

Mitsui & Co. Ltd and Vale SA have been engaged in the Moatize coal mine project in Mozambique and the Nacala Corridor rail & port infrastructure project.

On January 20, Mitsui and Vale entered into an agreement to transfer all of Mitsui’s interest in the projects and associated loans to Vale, the operator of the projects, for just $1 each.

“Mitsui is currently reviewing the anticipated loss that will result from the transfer,” the Japanese conglomerate said.

Vale to divest jointly held mine

In March 2017, Mitsui acquired, from Vale, a 15 percent equity interest in a Vale subsidiary that owns 95 percent interest of the Moatize Project, and 50 percent equity in another Vale subsidiary that is implementing the Nacala Project.

Since then, Mitsui worked to develop

the projects and improve their operations.

However, Vale made a decision to divest its coal business to concentrate on its core activities.

In response, Mitsui decided to sell its equity stake to Vale in the context of reorganisation and restructuring of the asset portfolio.

Vale will continue to operate the projects after their acquisition of Mitsui’s interest, and will ultimately consider divestment of their interest to a third party.

“Following the acquisition of Mitsui’s stakes and, hence, the governance and asset management simplification, Vale will begin the process of divesting its participation in the coal business, which will be guided by the preservation of the operational continuity of the Moatize mine and the NLC, through the search for a third party interested in those assets,” Vale said in a release.

“The HoA signing, as an initial step towards Vale’s divestment from the coal business, is in line with its discipline in capital allocation and the simplification of the Company’s portfolio, and reinforces its commitment to the Paris Agreement, as well as Vale’s ambition to become a leader in low carbon mining “ Vale said.

Japan Climate Initiative targets up to 50% RE share by 2030

On January 18, the 90-member Japan Climate Initiative (JCI) member companies called on the Japanese government to raise its renewable energy share to 40-50 percent in its 2030 electricity mix.

JCI counts noted Japanese entities like Sony, Nippon Electric, Hitachi, Ajinomoto and Nomura among others as its members.

To meet the goal of being carbon neutral by 2050, EU countries and US states have already set progressive goals to be reached by 2030, in the range of 40-74 percent in the electricity mix.

In contrast, Japan’s current renewable energy target for 2030 is only 22-24 percent.

This message calling on the Japanese government to raise its 2030 renewable energy target was endorsed by leading Japanese corporations.

Coal Insights, January 2021

33

CORPORATE

“Customer is now the king for Coal India”: Joshi

Coal and mines minister Pralhad Joshi handing over Coal Minister's Award to Coal India Ltd subsidiaries

Coal Insights Bureau

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oal India Ltd (CIL) should shed all sorts of discretions in its approach and attitude towards serving its customers, coal and mines minister Pralhad Joshi told the top management of the public sector miner.

The practice of putting coal in different buckets such as linkages, supply agreements and auctions should be stopped and the entire volume of coal produced should be made available to customers on demand at a time when competition from commercially mined coal is set to arrive, the minister said while addressing the top management of CIL and its subsidiaries at the Coal Minister’s Award 2020 function held recently in New Delhi.

“There should be a maximum of two buckets – one for the power sector and another for others,” he said.

Coal India also needs to prevent slippages

in quality of coal to compete with private merchant miners, Joshi said.

The ministry has been receiving complaints from several state governments who have sought to check the quality of coal at their end, the minister said.

“You have enjoyed a monopoly in the coal mining sector for so long. But monopoly doesn’t last forever. If our business is doing well because we are a monopoly and there’s no one to compete with, then that’s not good. Customer is the king now,” said the minister.

“We have coal, we have manpower, and yet we import coal. Then there is definitely some problem and we should think about it.

That is why improving efficiency, quality is of prime importance,” Joshi added.

as much coking coal requirement of the economy as possible.

“With the steel sector poised to grow from 130 million tons (mt) to 300 mt by 2030, coking coal demand is going to shoot up and this will raise our import bill,” coal secretary Anil Jain said.

Soft intervention

As there is a limit to the increase in efficiency that can accrue through improvement in mining processes, Coal India is going to achieve it through ‘soft interventions’ like First Mile Connectivity and implementation of Enterprise Resource Planning.

Such steps along with policy interventions by the government like connecting consumers to closest mines would cut logistics costs and improve productivity, the coal secretary said.

Mission Coking Coal

Coal India is adopting ‘Mission Coking Coal’ to raise domestic production and fulfill

Diversification strategy

The diversification plan of Coal India would

Coal Insights, January 2021

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54 Coal Insights, January 2021

Tear along the dotted line

Tear along the dotted line