Coal imports: Navigating cost headwinds

Sumit Maitra

India’s imports of thermal and coking coal have risen sharply during April-May, the first two months of the current financial year, growing by 27 percent to 28.95 million tons (mt) and by 42.68 percent to 9.1 mt, respectively, over the corresponding period of previous year.

While this growth has come on a low base of 2020’s initial period of lockdown, the fact that it has happened despite sharp rise in coal prices across the globe coupled with significant appreciation in ocean freight rates indicates the inherent strong demand for coal that is currently coming mostly from the power sector as also from other users of coal like cement and steel, which are seeing improved demand scenarios.

But can coal imports maintain the tempo seen so far or will it taper off in coming months?

Several indicators like coal stocks at power plants, auction premium and also undelivered auctioned coal show that while power demand continues to be strong, there is adequate stock of coal in the system and once the monsoon is over, Coal India would be in a position to speed up its output at a rate faster than what was seen in previous years.

All these factors might lead to imports in the current year likely to be lower than previous year’s level of 216 mt, and may dip marginally, traders and sector experts said.

Strong upsurge in power demand

India’s peak power demand rose by 16.2 percent at 193,850 megawatts (MW) during April-June quarter of FY22 as against 166,890 MW during the corresponding quarter of the previous fiscal (FY21).

Plant Load Factor improved to 58.64 percent during April-June 2021, up from 46.40 in corresponding period of FY21.

“The lockdown in the country had led to a decline in the peak demand, with the highest impact of 24.9 percent decline in the month of April, 2020 as compared to corresponding figure of April, 2019. However, as the lockdown norms were gradually relaxed, the peak demand of the country started growing and had eased out to 5.6 percent in August, 2020, over August, 2019. From September, 2020 onwards, the peak demand had shown a positive growth over the same month of previous year. The peak demand in 2021-22 (up to June) as compared to previous year 2020-21 has also shown a positive growth,” R K Singh, Minister of Power and New & Renewable energy, said recently.

Earlier, the peak power demand in the country during FY21 had increased by 3.5 percent at 190,198 MW, compared to 183,804 MW during the previous fiscal (FY20).

Adequate availability of local coal

Despite higher demand, pithead stocks of coal with Coal India remains at elevated levels at around 60 mt currently, according to sources, although down from a high of 100 mt in April. Stocks of coal with the power plants are also at comfortable levels.

While there has been significant improvement in power demand in recent times, there is currently oversupply in the power sector which would keep both power prices as well as coal requirement, said analysts.

Subdued auction demand

There is ample availability of cheap coal in the system indicated by the fact that coal e-auction premium on coal during the AprilMay period was just 13 percent, Indian Energy Exchange Ltd told investors recently.

Also, many of the bidders had not even lifted the coal they had successfully bid for earlier.

“Coal India is now pressurising auction bidders to physically lift the coal indicating that current available supplies are already adequate. Bidders have been delaying the lifting but Coal India authorities now want them to lift the coal without delay,” an auction bidder said.

While 124 mt of coal was booked via e-auction in FY21, about 66 mt was actually lifted while the balance has to be taken away this year, which the bidders are largely reluctant so far.

While CIL has been targeting 130140 mt of sales through e-auction this year, the present backlog might prevent it from reaching that target.

Rising stocks at power plants

Coal stocks at power plants are comfortable and have been rising in recent months.

Stocks of coal at power plants have gone up from a level of 23.61 mt in early May to about 24.2 mt as on July 22 of which imported coal stocks have increased from 0.36 mt to 0.55 mt during the period, Central Electricity Authority data showed.

Coal stocks at the power plants touched a high of 28.1 mt on July 2 before dropping to 24.2 mt.

Imported coal stocks on July 2 was about 0.54 mt, marginally lower than 0.55 mt as on July 22.