Coal Insights, November 2015

Contents

6 | COVER STORY

22 Steam coal prices firm up in November ahead of winter 23 Coking coal offers decline in November

HELE of a chance!

26 Rajasthan in race to be 2nd largest lignite producer 27 Indian refiners cut pet coke price to retain market share 28 Coal stocks rise further at power plants 29 India’s cement output marginally up in H1

As the world gears up for Paris climate summit, India aims to stand its ground on coal.

24 | Feature

30 India’s H1 power gen capacity addition down 26% y-o-y

India’s H1 coal output at 39% of annual target

32 DRI industry facing shortage of 5-10 mt of coal per year

Coal production stands at 275 mt; misses target due to low captive output.

33 Fourth tranche auction declared for nonregulated sectors

41 | Expert Speak

36 Martin’s power generation solutions to clean pollution control systems

If Germany can do, so can India

39 Govt pep pills energising economy?

India has a lot to learn from Germany’s unwavering focus on quality, says V K Arora.

42 Quippo Equipment to tap mining, port, telecom 44 CIL Q2 net up 16% y-o-y, down 32% q-o-q 45 Corporate updates 47 US power sector coal consumption may fall 9% in 2015 48 South Africa’s loss may be Colombia’s gain 54 A K Goel takes over as GM, SER 56 Indian Railway’s H1 coal handling edges up 3.67% 58 Thermal coal handling by major ports up 18.35% in Apr-Oct 60 Supply data 62 E-auction data 64 Port data

4 Coal Insights, November 2015

50 | International

South Africa’s coal exports up 9.1% till Sept Coal exports during January-September at 54.34 mt, despite no export to China.

52 | Logistics

Poor captive output hits Railway’s coal freight earnings The rakes supply scenario, however, has improved significantly, says SER.

Cover Story

HELE of a chance!

As world gets ready for the Paris climate change summit, India aims to stand its ground on coal Kingshuk Banerjee

6 Coal Insights, November 2015

Cover Story

“A

s we approach the Paris summit, it’s essential that we quicken the deployment of all low-emission technologies, including HELE. This is particularly true in countries, such as India, where energy demand is growing rapidly and the current trend is for sub-critical power stations to be built. HELE technologies allow developing countries to minimise CO2 emissions, while not sacrificing legitimate economic development and poverty alleviation efforts.” - World Coal Association As the world gets ready for the curtainraiser for crucial negotiations regarding climate change at the UN Conference in Paris in December, the focus is now on New Delhi.

Which way would India go? Would she still embrace the old coal way or venture down the new road of renewable energy?

Would the crumbling Chinese economy cast any ripples on the Ganges? Would decline in coal consumption in Beijing lead to its eventual consumption in New Delhi?

With so many similarities in terms of economic, political and cultural histories, can India afford to take a different long-term road than China’s? Or like China, would India too eventually take the Green route?

These questions are revolving across global coal industry corridors.

How India would present her future energy path is a billion-dollar question to the entire world. For the first time, New Delhi has emerged as a truly global power on the world energy map as everybody is anxious to know what the future course of action this nation of 1.30 billion people would undertake.

Given the contemporary assumptions and prevailing situations as well as keeping in mind a future scenario, it would not come as an utter surprise if India does not take that diversion at all. Rather, she would stick to her old Coal Way, though it could be coated in Green.

And here, as the pundits point out, high-efficiency low-emission (HELE) technologies could play a pivotal role in the energy mix in a country like India. Slowly but steadily opinions are forming the world over too for HELE. London-based World Coal Association (WCA) has already brought out a concept paper on HELE technology where it lucidly jotted down a future roadmap for

the emission-ridden coal world. Several coal giants have lent their support for HELE technologies.

While western Europe, led by the US and the UK have started renouncing coal in a bid to cut down on emission levels, HELE could be the just weapon for countries like India to fight back.

India story

So let’s first see the present position of India in the global coal scene.

A rapid rise in coal imports can be seen if one glances through the figures from 2009-10 to 2014-15. While total imports of coal were at 80.908 million tons (mt) and production at 525.32 mt in 2009-10, these were at 238.698 mt and 613.075 respectively in 2014-15. In other words, while total consumption was approximately 606.228 mt in 2009-10, it was roughly at 851.773 tons in 2014-15. Therefore it’s roughly a 40 percent rise in the last 6 years. In a country of 1.25 billion people, this growth is speedy indeed.

And the story does not end here. For the first half of fiscal 2015-16, India imported 129.811 mt while production was at 275.437 mt. In other words, India has already imported more than she bought in the full year of 2011-12 (128.042 mt).

The principal reason behind this galloping progress is the rise in imports of non-coking coal with the first half of the current fiscal seeing output levels touching a mere 95.603 mt, though this figure is more than the full year’s imports of 89.141 mt in 2011-12. In the last six years, imports of non-coking coal have been nearly 4-fold (46.193 mt imported in 2009-10 to 185.35 mt imported in 2014-15).

Naturally, the impact of this galloping trend is bound to tell upon the global coal industry. India has emerged as one of the major coal importers in the world.

So what is the potential India holds that makes her so important to the global coal community?

As per the International Energy Agency (IEA), India contributes the single largest share of growth, around one-quarter, in the global energy demand pie. India today is home to one-sixth of the world’s population and is the third-largest economy.

But India accounts for only 6 percent of global energy use and one in five among 240 million people still lacks access to electricity.

So why is the global community attaching so much importance to the Indian energy scene? In a nutshell, her future is so great that alone she could be a distant leader.

The IEA forecasts that by 2040 India’s energy consumption will be more than that of the Organisation for Economic Co-operation & Development (OECD) and Europe combined, and is rapidly approaching the levels seen in the United States. Like China previously, India’s economic growth will be fuelled by coal. Reflecting this, in 2012, 45 percent of the total primary energy demand and 72 percent of generated electricity demand was met by coal. India currently has approximately 205 gigawatts (GW) of coalfired electricity generation capacity. This will soon be augmented by 113 GW of new similar capacity currently under construction.

The IEA figures out that demand for coal in power generation and industry will surge, increasing the share of coal to almost half of the energy mix and making India, by a distance, the largest source of growth in global coal use.

Over the next 25 years, electricity demand in India is forecast to grow at over 4 percent per annum. The IEA estimates that installed coal-fired power generation capacity will reach almost 500 GW by 2040 (more than three times the 2012 installed capacity).

Indian coal story (in million tons) Import (coking coal)

Import (non-coking coal)

Import (total)

Production (coking coal)

Production (non-coking coal)

2009-10

27.29

46.193

80.908

39.183

486.14

525.32

2010-11

29.373

83.695

118.67

48.415

477.36

525.868

2011-12

32.506

89.14

128.042

50.426

482.08

532.509

2012-13

32.941

112.292

153.009

51.163

498.34

550.421

2013-14

35.798

136.72

181.583

55.674

506.67

562.358

2014-15

41.48

185.35

238.698

58.724

552.75

613.075

Year

Production (total)

Source: India Coal Market Watch database

Coal Insights, November 2015

7

FEATURE Feature

India’s H1 coal output at 39% of annual target

Sanjoy Bag

I

ndia’s coal production crossed 275 million tons (mt) in the first half (H1) (April-September) of the current financial year. The production level in these first six months was just 39 percent of the annual targeted volume 700 mt.

The H1 target in 2015 was 307.57 mt.

And, going by the trend, many feel, it would be hard to achieve the targeted production volume of 700 million tons (mt) for fiscal 2015-16. Half of the year has passed by but the targeted production volume has not crossed the “half ” mark.

The country failed to achieve the H1 target of 307 mt. However, to meet the annual output target of 700 mt, it has to be on course to meet the shortfall in H1 in the coming quarters. It would be a herculean task to meet the shortfall of 32 mt to be achieved during the rest of the financial year of 2015-16.

24 Coal Insights, November 2015

Of the total targeted production of 700 mt, 550 mt is to be produced by Coal India (CIL), 56 mt by Singareni Collieries Company (SCCL) and 94 mt by captive coal mines, according to provisional data available with Coal Insights.

India’s coal production during September 2015 stood at 44.95 mt, up just 1.87 percent from 44.12 mt in September 2014, the data showed. CIL’s output in September 2015 was 37.17 mt but failed to achieve the targeted 38.77 mt though it was able to beat the August production figure of 36.21 mt.

SCCL, on its part, produced 4.44 mt and the captive coal mines 3.34 mt in September, 2015.

Captive coal output falls 35% y-o-y

Coal production from the captive blocks in India fell 35.20 percent to 3.34 mt in

Pithead vendible stocks up India’s pithead vendible coal stocks rose to 36.19 mt as on the last day of September 2015 against 33.23 mt recorded on the last day of September 2014, according to available data.

On a month-on-month basis, India’s pithead vendible coal stocks were down 10 percent from 40.21 mt recorded as on the last day of August 2015.

The increase could be attributed to higher pithead vendible stocks of Coal India subsidiaries such as South Eastern Coalfields (SECL) where inventories went up to 7.39 mt as on September 30, 2015 against 4.03 mt as on September 31, 2014.

During the period under review, pithead vendible stocks at Eastern Coalfields (ECL) stood at 1.06 mt as on September 30, 2015, from 1.12 mt on the same day a year ago while that of Bharat Coking Coal Limited (BCCL) increased to 3.37 mt from 3.10 mt a year ago.

Pithead vendible coal stocks at captive coal mines stood at 0.32 mt on September 30, down from 1.87 mt on the same day a year ago. Stocks at Singareni Collieries Company Limited (SCCL) stood at 4.15 mt on September 30, 2015, up from 2.13 mt as on September 30, 2014.

September 2015, compared to 5.15 mt produced in the corresponding month of 2014. A volume of 2.86 mt was produced by captive blocks in August 2015.

However, coal output from the captive blocks goes past the August production figure of 2.86 mt and also the July production figure of 2.88 mt. While in June 2015, captive output stood at 3.20 mt.

A volume of 18.62 mt was produced in H1 of 2015, which merely crossed the 20 percent mark of the 94 mt target for FY2015-16.

FEATURE

DRI industry facing shortage of 5-10 mt of coal per year Arindam Bandyopadhyay

E

ven as domestic coal production has increased sharply in the current year (2015-16), the Indian sponge iron (DRI) industry is facing shortage of 5-10 million tons (mt) of coal per annum, an official of a leading sponge iron maker said.

“At present, the Indian sponge iron industry requires 25-30 mt of non-coking coal (Grade B or C). Present domestic supply levels are at around 15 mt and 4-5 mt are being imported for usage by the coal-based sponge iron industry,” the official said.

The average requirement of coal is 1.6 tons per ton of sponge iron. “If the grade of coal is lower, then requirement increases to 2-2.5 tons of coal per ton of sponge iron,” he said.

The shortage of domestic coal has accentuated after the government reduced linkages to 37.5 percent from earlier 75 percent, said the official.

“Good quality coal is being allocated to power and cement plants while supply of lower grades, ie, D, E and F varieties are being given to sponge iron plants with high percentage of fines,” he said.

“Sponge iron production requires at least 40-45 percent fixed carbon (FC) coal whereas linked coal has less than 40 percent FC. Hence, players go for blending with imported coal from South Africa,” he added.

The shortage of coal, along with subdued prices of sponge iron in the country, he said, has resulted in a decline in the growth rate of coal-based production in recent years. If the situation does not improve in coming years, there would be further shift from coal based production.

Give ore linkage, subsidy to DRI

In order to survive the hostile market conditions, the sponge iron industry in India needs government support in the form of linkages for iron ore and subsidies for reuse of fines, the official said.

32 Coal Insights, November 2015

“Iron ore linkages (should) be given to individual sponge iron units, based on capacity, at an affordable price,” he said.

Besides, the industry also needs support from the government in the form of subsidies or incentives for reuse of fines, mandating iron ore miners a specific percentage of production towards pelletisation or beneficiation and restrictions on ore exports from the country, he said.

Noting that there is deterioration in the quality of iron ore, he said, the material generally available in the market has less than 60 percent Fe content, much less than the desired 66-65 percent. Also, there is presence of a large percentage of fines in the ore supplied.

“Thus, realisation for the finished steel produced by such secondary producers, without captive mines, is less than the cost of production, leading to losses and low utilisation,” he observed.

As a result, of late, regions in Odisha, Bellary and Chhattisgarh have witnessed shutdown of DRI units due to nonavailability of ore. Also, linkage of domestic iron ore price to international prices has further escalated iron ore prices, he added.

Apart from raw materials and sponge iron price, the DRI sector in India continues to face problems with pollution issues. Reports say that the growth of the sponge iron industry has had an adverse impact on the environment of the neighbouring localities. This is particularly so in places like Bellary where thick black smoke, contaminated and depleted water supply and falling agricultural yields are largely seen as the fallout of the industry’s growth.

However, in order to make the manufacturing process environment-friendly, the industry needs to invest heavily in technology upgradation. This is something the sector can ill afford given the current market conditions, industry official admit.

International

South Africa’s coal exports up 9.1% till Sept Coal Insights Bureau

S

outh Africa’s coal exports via Richards Bay Coal Terminal (RBCT) during the first nine months (January-September) of 2015 rose by 9.13 percent to 54.34 million tons (mt), compared to 49.78 mt reported for the same period of 2014.

Coal exports through RBCT in September 2015 stood at 5.83 mt, down 11.39 percent month-on-month from 6.58 mt exported in August 2015. During September 2014, total coal exports via RBCT stood at 6.69 mt.

According to data available with Coal Insights, the slight drop in exports was largely on account of lower shipments to India which led to a decrease in the country’s share to 47.88 percent of total exports from 49.09 percent (of the total 48.50 mt of exports) in the first eight months of 2015. Also, supplies to China have nosedived and this has impacted overall exports through RBCT this year.

South Africa’s coal exports through RBCT in the first six months of the current fiscal year (April-September, 2015-16) stood at 35.78 mt, compared to 33.83 mt recorded in the same period of the previous fiscal,

showing a marginal increase of 5.77 percent year-on-year.

No exports to China

There have been no exports of coal from South Africa’s Richards Bay Coal Terminal (RBCT) to China for the last seven months till September, 2015 on account of lack of demand from this Asian country, as its economy continues to be in the grip of a slowdown.

Consequently, there were no exports of the fuel to this country from this terminal in the first half (April-September) of the current financial year of 2015-16 against a volume of 1.44 mt recorded in the same period of the

Coal exports through RBCT in 2015 and 2014 (in mt)

8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 Jan

Feb

50 Coal Insights, November 2015

Mar

Apri

May

Jun

Jul

Aug

Sept

previous fiscal, as per information available with Coal Insights.

Chinese companies have stopped buying steam coal from South Africa after last procuring 164,784 tons in February 2015.

Prior to that, China imported 164,999 tons of coal from RBCT in June 2014.

As a result, total imports of coal into China from RBCT in the first nine months of 2015 have remained at 164,784 tons. Coal exports to China from RBCT were at 2,492,629 tons during the same period in 2014.

Pak imports edge up

Pakistan’s coal imports from RBCT stood at 2.26 mt in the first six months (or first half ) of April-September, 2015-16 compared to 2.24 mt recorded in the same period of the previous fiscal, showing a marginal increase of 1.13 percent year-on-year, according to available data.

On a month-on-month basis, Pakistan’s coal imports from RBCT stood at 167,750 tons in September 2015, compared to 783,273 tons recorded in August 2015, resulting in a sharp 78.58 percent decline.

During September 2014, total coal imports by Pakistan via RBCT stood somewhat higher at 388,654 tons.

Pakistan’s coal imports from RBCT during the first nine months of 2015 (JanuarySeptember) stood at 2,861,616 tons, up 6.45 percent from 2,688,298 tons imported in the same period in 2014, shows the data.

Tear along the dotted line

66 Coal Insights, November 2015 Tear along the dotted line