Coal Insights, November 2017 by mjunction services ltd

Contents

6 | COVER STORY

6 Return journey? 18 India’s coal imports may revisit 2014-15 peak levels

Return journey?

22 Thermal coal offers lose steam in November

With a question mark on Coal India’s production growth, are coal imports on a comeback trail?

23 Coking coal offers rise in November 24 India’s July coal imports down 24% y-o-y 25 CIL production up 6% in October y-o-y 25 India’s Q2 cement production marginally down y-o-y 26 Singareni’s production slips 14% in October y-o-y

18 | Interview

India’s coal imports may revisit 2014-15 peak levels India’s coal imports are headed northwards, says Mayank Garg of Venerable Energy Solutions.

27 No power capacity addition in October

34 | FEATURE

28 Indian power plants’ coal stocks up 15% m-o-m

India’s proven coal reserves at 143.05 bt: GSI

29 Sponge iron production declines 11% in Oct y-o-y 32 Thermal plants stare at PPA renegotiation risks: Ind-Ra 34 India’s proven coal reserves at 143.05 bt: GSI

Current estimates show an increase of 4.9 bn tons in proven reserves over 2016.

36 | SPECIAL FEATURE

36 Explosives industry eyes 11.7% CAGR by FY20

Explosives industry eyes 11.7% CAGR by FY20

38 Policy paralysis?

Coal likely to play leading role in pushing up demand, say industry sources.

41 US coal production up 10% in Jan-Oct 42 Indian Railways’ October coal handling up 7% y-o-y 44 The machines that ‘make money’ 46 Corporate update 54 E-auction data 56 Port data

4 Coal Insights, November 2017

44 | Corporate

The machines that ‘make money’ Enelex, a special electronics company from Czech, brings unique offerings for Indian miners.

Cover Story

Return journey? Are coal imports on a comeback trail, with a question mark being raised over domestic coal production?

Madhumita Mookerji & Arindam Bandyopadhyay

6 Coal Insights, November 2017

Cover Story

uddenly, in a deviation from the problem of plenty, coal’s user industries are feeling the heat of a shortage since August. And there seems to be the hint of a scramble for imports once again, in a throwback to the scenario that prevailed 2 years or so ago. Well, the situation is definitely not alarming, but imports, as per Coal Insights’ research, are inching up. Many analysts aver that the recovery seen in September-October is likely to sustain till the year-end and into the first quarter (Q1) of calendar 2018. Imported coal stocks are quite low at the moment. In fact, as late as November 16, 2017, the stocks of imported coal at the thermal power stations (TPS) were down 5.26 percent at 0.288 million tons (mt) compared to 0.304 mt as on November 9, 2017. On a y-o-y basis, the stocks were down 81.39 percent from 1.548 mt as on November 16, 2016. Further, the imported stocks on November 16, 2017 were down 24.8 percent from 0.383 mt on October 16, 2017 m-o-m. In the thermal power sector, the number of plants facing critical coal stocks position of less than 7 days stood at 11, 11, 4 and 3 as on November 16, 2017, November 9, 2017, October 16, 2017 and November 16, 2016, respectively. The number of plants facing super-critical coal stocks position of less than 4 days stood at 11, 14, 22 and 0 as on November 16, 2017, November 9, 2017, October 16, 2017 and November 16, 2016, respectively. In fact, 3 weeks up to November 9, 2017, coal stocks at power plants saw a week-onweek decline, a trend that was reversed only from November 16. As per Central Electricity Authority (CEA) data, from September 27, 2017, stocks started dipping week-on-week. On this day, stocks were at 8.738 mt but on October 4, 2017 these dropped to 8.002 mt and since then, the inventory started declining steadily till October 26 (7.439 mt), recovering on November 2, 2017 to 7.871 mt. But the volumes declined again to 7.795 mt on November 9, 2017. And the finger of suspicion somehow seems to be pointing towards the country’s main coal producer, Coal India Limited (CIL) with allegations that it is falling short of meeting the demands from the power plants in the country. An industry source, speaking on condition of anonymity, hinted

that there was a shortage in supply from Coal India (CIL) since August this year due to heavy rains. “Coal production of CIL was hampered and so it was not able to fulfil its commitments to the power plants,” the source said. Echoing him, Virendra K Arora, Chief Mentor, Karam Chand Thapar & Bros (Coal Sales) Ltd, recently told Coal Insights: “Now the scenario has totally reversed. There was a time when there were not even 1-2 plants on the critical list. Today, there are at least 23 plants on the critical list. And 18 plants are on the super-critical list. Now plants are hungry for coal once again but not able to get enough supplies,” the concern in his voice evident. Mayank Garg, Managing Director, Venerable Energy Solutions, said: “What I know is that the stockpiles reduced considerably at some plants and, in fact, there were instances where NTPC bought increased volumes of gas in the spot market to meet the power demand. May be this was due to logistics issues and it was related to only one plant. But if you look at the stockpile at the power plants, there is definitely a decline.” He stressed that there is definitely a shortage of coal and CIL is not being able to meet the demand of the power plants. Indian thermal coal imports were down almost 12 percent, as per Coal Insights data, to 81.45 mt in April-October, 2017 against 92.48 mt seen in the same period in the previous fiscal. However, April 2017 saw a huge single month spurt to 13.61 mt, which again subsided to 12.46 mt in May 2017, hovered around 12.5 mt in June but dropped sharply to 10.11 mt in July, recouped to 11.26 mt in August but dipped to 10.26 mt

in September and rose yet again to 11.24 mt (provisional) in October. But the average remained at 11.63 mt from April till October, 2017 against the 13.77 mt seen in AprilOctober, 2015 and 13.21 mt in the same period of 2016. Coal imports had seen a sharp reduction because the Narendra Modi-led NDA government had taken a proactive stand on lowering the dependency on imports especially when the country was sitting on coal reserves of 300 billion tons and yet spending `100,000 crore in foreign exchange in buying the overseas material. Furthermore, the government had issued a diktat to the state-owned power utilities to stop their imports and, as a consequence, their overseas coal purchase has shrunk to nil at present. A deeper analysis tells us that the volume of imports will depend on Coal India’s performance. But, on the other hand, data reveals that the state-owned power plants’ cumulative stocks had slipped to as low as 10 mt on September 11 from a high of around 39 mt on April 4, 2016. As a result, some government-owned utilities, it is learnt, are floating import enquiries, in a bid to resolve their fuel crisis. Coal Insights’ own research reveals that heavy rains led to a month-on-month increase in coal imports by Indian buyers in October, compared to the previous month. In fact, thermal coal imports had seen a monthon-month increase of 9.54 percent in October 2017 based on provisional figures of 11.24 mt compared to 10.26 mt in September, our data show. “This was on account of a short supply from Coal India due to heavy rains,” industry sources said, adding that “production of CIL

Coal stocks position at power plants on various days Date Stock (in mt) Days

Nov 16, 2017

Nov 9, 2017

Oct 16, 2017

Nov 16, 2016

8.516

7.795

7.381

18.753

Imported (in mt)

0.288

0. 304

0.383

1.548

Domestic (in mt)

8.227

7.491

6.997

17.205

Critical plants (no. of plants)

Super critical plants (no. of plants)

Critical plants pit head (no. of plants)

Super critical plants pit head (no. of plants)

Coal Insights, November 2017

Interview

India’s Coal imports may revisit 2014-15 peak

ndia’s coal imports are headed northward, no matter what coal producers say. The recent trend of shortfall in stocks at the power plants is a pointer towards this direction, Mayank Garg, Managing Director, Venerable Energy Solutions, tells Madhumita Mookerji.

What is your outlook on India’s coal imports? Do you think these are slated to go up and why? I feel imports declined over the last 2 years from the levels seen in 2014-15. And, subsequently after the new government assumed charge in 2014, it also brought in a lot of reforms. Around that time, a lot of coal was available but it was not able to reach the power plants, mainly because of logistics reasons and also because the mines that had been opened up were not able to ramp up production. But the government came up with some good initiatives and was able to solve a few problems, including those that related to logistics and increasing production. These

18 Coal Insights, November 2017

SPECIAL FEATURE

Explosives industry eyes 11.7% CAGR by FY20 Coal likely to play leading role in pushing up demand

Madhumita Mookerji

uoyed by potentially dynamic coal and iron ore sectors in the coming years, the Indian explosives industry is expected to clock an 11.7 percent volume compound annual growth rate (CAGR) to around 1.5 million tons (mt) by financial year 2019-20 (FY20), as per industry sources. In fact, this 11.7 percent CAGR, sources say, is better than the 8.6 percent volume CAGR seen over 2009-17. Coal is likely to play a leading role in pushing up the fortunes of the explosives players with an expected 6.5 percent CAGR in coal production, with the sources basing their research on certain factors. These include single-digit growth in coal-based power generation; increased traction from iron ore mining in 3 states – Chhattisgarh, Odisha and Jharkhand; announcement of the new steel policy; and revival in cement demand. “On the back of these positives, we expect domestic coal volumes to see a 6.5 percent CAGR during FY18-20,” the sources said. Even though the market expects coal production to see a 6.5 percent CAGR during FY2018-20, increase in the stripping ratio at the existing coalfields and commencement of 22-24 mines over FY2018-19 are the main reasons behind expecting an 11.8 percent

36 Coal Insights, November 2017

CAGR push for the explosives sector over financial year 2018-20 from coal mining alone. India produced 1.1 million tons (mt) of explosives in financial year 2016-17 and of the total volumes produced around 70 percent was supplied to Coal India (CIL). In fact, in order to grow their business, many explosives companies, in recent years, set up their plants close to CIL’s mines, the sources observed. Further, an uptick in iron ore volumes and higher overburden expenses at existing mines are expected to lead to a 7.2 percent CAGR in explosive volumes from this sector in FY2018-20. That apart, an uptick in infra spending and continued growth in exports should help the ‘Others’ segment push up explosives volume CAGR by 12.5 percent over FY1820. Notably, CIL accounted for 82 percent of the domestic coal produced and 73 percent of the explosives manufactured during financial 2013-17, with coal mining accounting for 78 percent industrial explosives consumption over this period, followed by iron ore and limestone. The industry’s view is that despite the sudden increase in solar power capacity additions, thermal power will retain its hold. Currently, works are ongoing across

66 gigawatt (GW) of thermal power plants and commissioning of these would translate into single-digit growth in coal-based power generation. Bidding war

An analysis of the outcome of CIL’s 240 bulk tenders over 2013-17 suggests that bid prices declined 26 percent from peak realisation of `33,621 per ton. Even detonators and other accessories reported a decline in realisation from peak levels. While some parts of these could be explained by falling ammonium nitrate (AN) prices, there was also increasing competition among the players, especially the top 6. These include Premier Explosives (PEL), Solar Industries India (SIIL), Keltech Energies, Indian Explosives (IEL), IOCL’s IBP division, and Gulf Oil. The focus on market share gains prompted the bigger players to get aggressive. This cutthroat competition led to 3 of the top 6 players reporting single-digit revenue CAGR during 2010-17 while margins remained under pressure with declining returns on investment. The explosives industry in India is highly regulated under the Department of Industrial Policy & Promotion (DIPP) and the home ministry. Also, various directives govern key business aspects (including manufacturing, marketing and transportation). Despite

CORPORATE

The machines that ‘make money’

his is not a currency printing tool, of course, but coal samplers and analysers from the stable of Enelex, a special electronics company from the Czech Republic that helped South African miners make huge savings by cutting down the penalty paid to their customers for coal quality mismatch. Vladimir Jenista, Commercial Director, Enelex, tells Arindam Bandyopadhyay about the company’s unique offerings and how the Indian coal miners (and power generating companies) can replicate the example of their South African counterparts by using these products. Excerpts:

Please tell us about Enelex and its unique product offerings for the mining sector. Enelex is a company with around 25 years of experience in the field of coal quality management. Our core activities comprise designing, manufacturing, installation and maintenance of our coal quality management systems all over the world. The major customers are coal miners and power plants, which deal in coal either as a product or as a raw material. As you are well aware, coal-fired power plants sign agreements with coal miners on the quality of coal to be supplied by the latter. This is important because every boiler is designed for a definite range of coal grades. If the quality of coal supplied is lower or higher than the specified range, it affects the functioning of the boiler and

44 Coal Insights, November 2017

also the turbine plant and compromises the plant’s efficiency, leading to losses in generation and delivery of electricity into the national grid. To avoid such operational and financial losses, it is important that the power plant inspects and maintains the quality of coal coming into bunkers before the material is put into boilers. With the installation of our automatic sampler and other products, it is possible to continuously monitor and thus maintain the coal quality within the required range. I will give you an example here. Some time back, we installed our coal analysers in South Africa for a global mining company. Now, this company was supplying coal to Eskom, the South African electricity public utility, and was paying huge penalties for frequent mismatch

of quality. But, ever since they installed our machines, they didn’t have to pay any penalty at all. So great were the savings that they coined the term ‘money making machine’ to describe our coal analysers! Our second product is the automatic coal sampler and Auger sampler. Automatic coal samplers are used for sampling in belt conveyors, while Auger samplers are used for sampling from trucks or railway carriages. When a supplier supplies on the conveyor belt, which means the coal mine is located near the power plant, an automatic coal sampler is used for sampling. And if coal is supplied to power plants by trucks or railway carriages, then you need Auger samplers. The third product is the thermalimaging system which is used to pre-empt spontaneous combustion in the stockyard.

58 Coal Insights, November 2017

Tear along the dotted line