Contents
6 | COVER STORY
14 Coronavirus an unprecedented shock to global economy: Moody’s
Global Lockdown: Economies under siege
16 Thermal coal offers decline in March 17 Seaborne coking coal offers fall in March
A detailed look at coronavirus outbreak that has shut down quarter of the world, impacting commodity movement and energy demand.
18 Parliament passes law to open coal sector for commercial mining 20 CIL’s coal production up 14.2% in February 21 Oil price drop threatens global thermal generation 23 India’s January coal imports down 12% y-o-y 24 SCCL’s production down 7% in February
28 | Feature Renewable to make investment in coal uncompetitive: Report Investments in coal mine projects worth $600 billion world over risk turning unviable with new RE projects getting cheaper.
30 | Feature
25 February sponge iron production up 10.5% y-o-y 26 No power capacity addition during January
India’s power distribution sector needs further reform: IEEFA
27 Cement production in January at 31.36 mt 33 Power sector revives but to stay muted in FY21 36 Coal India floats tender for Dankuni methanol project 38 Indian Railway’s coal handling in February up 1% 39 Gujarat Urja Vikas increasing focus on renewables
Discoms remains the weakest link in the entire power value chain with poor financial health.
45 | INTERNATIONAL
ArcelorMittal calls for carbon tax law on EU imports EU emission trading system’s carbon tax applicable on steel producers.
49 | INTERVIEW
40 Corporate Update 43 Government Update
“Focus on raising coal production calls for major mining equipment demand”
44 US Coal output estimated at 573 MMst in 2020
Hemant Mathur, AVP - Sales and Marketing, Tata Hitachi, talks about potentials in mining equipment post opening up of coal mining.
52 E-auction data 53 Port data Publisher’s Statement
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: Amit Surana : Yes
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: Amit Surana : Yes : Tata Centre, 43 J L Nehru Road, Kolkata 700071
5. Editor’s Name
: Arindam Bandyopadhyay
Dated: March 2020
4 Coal Insights, March 2020
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: Yes : Tata Centre, 43 J L Nehru Road, Kolkata 700071
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Cover Story
Global lockdown:
Economies under siege Sumit Maitra
6 Coal Insights, March 2020
Cover Story
S
ince we talked about coronavirus epidemic in our February cover story, the outbreak has turned into a global pandemic over the past 30 days, pushing the world in an unprecedented period of crisis and uncertainty. As we write this cover story, about 19 countries, India being the latest, are under lockdown, implementing forcible social distancing. Indian economy, and social life, is under full lockdown for 21 days till April 14 even as 24 states had partially entered a lockdown till 31 March earlier. That means most economic activities, from small businesses to large factories, have been severely impacted in these countries, most of which are either major resource exporters or consumers. With no definitive treatment in sight and fatality rates continue to be high in countries like the UK and the USA, Italy and Indonesia, how long the lockdown would continue depends upon how affected countries and their local authorities manage and control the spread of the coronavirus. Any missteps, as seen initially in China, and then in Italy and United States would only prolong the ordeal for the global population. While China is now limping back to work, restarting its mines and factories and shopping malls, its connectivity to the most of the outside world would continue to remain broken preventing cargo shipments till the global lockdown continues. China, where it all started, is the largest
energy consumer in the world, accounting for more than 80 percent of global oil demand growth last year. Oil prices have fallen continuously over four weeks, by about 60 percent since the start of the year to 18-year low with international benchmark Brent crude falling to $24.52 per barrel as on March 19. Australian thermal coal prices declined in February by 2.9 percent on month to average $67.6/mt amid the impact of the Covid-19 outbreak in China. While natural gas hub-based prices hit record lows in both the US and Europe, amid more than comfortable inventory levels, coal prices declined to a lesser extent as lower demand for power generation in China was met by a drop in coal mining output in the country Argus’ 6,000 kcal/kg cif AmsterdamRotterdam-Antwerp (ARA) daily index is up slightly compared with the end of February while 6,000 kcal/kg fob Newcastle assessment down by around 3 percent. While the spread of the coronavirus appears to be stabilizing in much of Asia, the long-awaited initial figures from China for January and February were much worse than feared. S&P Global Ratings thinks the effects of the pandemic have pushed the world economy into recession, dragging full-year GDP global growth down to just 1-1.5 percent. The initial data from China suggests that its economy was hit far harder than projected, though a tentative stabilisation might have begun there.
Thermal coal prices in Australia ($/tn)
The situation remain grim in Europe and US with social distancing or reduction in person-to-person contacts in the all the locked down economies is leading to demand collapse that will take industrial activities sharply lower in the second quarter. Closer of factories and transportation means much less energy consumption across the globe leading to situations of thermal power plants in several economies including India being idled due to lack of demand for electricity. In such a scenario, predictions about when global economic activity would rebound and demand revive, remains just speculations and best-case scenarios. “While China will see a sharp deceleration in 1Q20 and to a lesser extent in 2Q20, a recovery in the country is projected to take hold in second half of 2020, supported by government-led stimulus measures. However, the impact of Covid-19 related developments outside China will continue well into 2Q20, especially in Asia, the Eurozone, US and Middle East. Therefore, all these regions are forecast to see a slowdown through 2Q20, recovering only towards the second half of 3Q20. By 4Q20 global activity is assumed to have normalized. Depending on future developments, further downside risk remains,” Organization of the Petroleum Exporting Countries said. Coronavirus epidemic can potentially have “far-reaching economic and social consequences”, a rare joint statement issued by two most prominent global energy groups, International Energy Agency and Organization of the Petroleum Exporting Countries, said. The statement was issued after executive director of IEA, FatihBirol, and Secretary General of OPEC, Mohammad Sanusi Barkindo, spoke by phone to review the current situation. Economic impact
Source: globalCOAL
The economic impact is already visible in the countries most affected by the outbreak. For example, in China, manufacturing and service sector activity declined dramatically in February. While the drop in manufacturing is
Coal Insights, March 2020
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Cover Story
Coronavirus an unprecedented shock to global economy: Moody’s Sees India GDP growing 2.5% in 2020 Coal Insights Bureau
T
he G-20 economies will experience an unprecedented shock in the first half of this year and will contract in 2020 as a whole, before picking up in 2021, Moody’s Ratings have said in its just released Global Macro Outlook for FY21. “We have revised our growth forecasts downward for 2020 as the rising economic costs of the coronavirus shock and the policy responses to combat the downturn are becoming clearer. We now expect G20 real GDP to contract by 0.5 percent in 2020, followed by a pickup to 3.2 percent growth in 2021,” Moody’s said in its report published on March 25. India will grow by just 2.5 percent in 2020, it said. “The government of India has announced 21-day lockdown. We expect these measures to dampen economic growth. For India, we are now projecting growth rates of 2.5 percent in 2020 followed by 5.8 percent next year. At these low growth rates, sharp fall in incomes would be likely, further weighing on domestic demand and the pace of recovery
in 2021. Credit flow to the economy already remains severely hampered because of severe liquidity constraints in the bank and nonbank financial sectors,” the report said. Key highlights
♦♦ Fiscal and monetary authorities are increasingly stepping up the level of support to their economies to avert permanent damage to households and businesses. Globally, authorities are adopting important policy measures such as income guarantees and regulatory forbearance in an effort to reduce the risk of simultaneous defaults weakening financial stability. “We expect policy measures to continue to grow and deepen, as the consequences of the shock in terms of depth and duration become clearer. Nevertheless, downside risks to growth remain sizable” ♦♦ Business activity will likely fall sharply across advanced economies in the first half of 2020. Cumulative contraction seen over the first and second quarters of 2020 of 5.4 percent in Germany, 4.5
G-20 economic growth - Annual % change
14 Coal Insights, March 2020
A general lack of social safety nets, a weaker ability to provide adequate support to businesses and households, and inherent weaknesses in many of the major emerging market countries will amplify the impact of the shock: Moody’s percent in Italy, 4.3 percent in US, 3.9 percent in the UK and 3.5 percent in France. Although supportive fiscal and monetary policy measures will likely aid recoveries with above-trend growth in the subsequent quarters and in 2021, the output loss in the second quarter is unlikely to be recovered ♦♦ China real GDP growth expected at 3.3 percent in 2020, followed by 6 percent in 2021. Slow improvement in consumer demand will temper the pace of China’s recovery. In other emerging market countries, a sharp reduction in GDP in the second quarter is also inevitable especially where strict containment measures have been imposed. But the recovery in emerging markets will likely be relatively more muted than in advanced economies. A general lack of social safety nets, a weaker ability to provide adequate support to businesses and households, and inherent weaknesses in many of the major emerging market countries will amplify the impact of the shock.
FEATURE
Oil price drop threatens global thermal generation Countries replacing coal with gas Coal Insights Bureau
T
he current rout in global oil and gas prices has threatened viability of coal as a source of base thermal energy supply in several economies, particularly those where coal is not cheap or in scarcity. Oil and gas prices have plunged, triggered by demand slump caused by coronavirus pandemic as well as efforts by Saudi Arabia and Russia to flood the market with excess supplies to put US oil and shell gas producers in trouble. “Implied generation cost for a 55 percentefficient gas-fired power plant in Japan, including environmental fuel tax, could drop to as low as $40/MWh in the fourth quarter of this year, from around $63/MWh now. The equivalent coal-fired generation costs, based on recent physical forward NAR 6,000 kcal/kg fob Newcastle prices and assuming flat freight rates, would be broadly stable over the period at around $29/MWh. This would cut coal's cost advantage to $10/MWh from around $30/MWh,” Argus said in a recent report.
Oil crisis of FY16 revisited
For many years, US remained a net oil importer and lower oil prices were seen as positive for the economy. “However, that calculation has become far more nuanced recently as the shale revolution has turned the US into the world’s largest oil producer and—very recently—a net exporter. Given this new reality, the typical positive effects of lower oil prices on consumer spending (cheaper gas prices act like a tax cut for consumers) must be weighed
against the negative effects on oil producers,” says a report by State Street Global Advisor on current state of the oil sector. The US oil industry and shale in particular was still recovering from 2015-16 oil price fall when oil prices dropped in late 2018. In 2014-16, driven by a growing supply glut, oil prices dropped by 70 percent, one of the three biggest declines since World War II. It however failed to deliver the boost to global growth that many had expected, benefits of substantially lower oil prices muted by low responsiveness of economic activity in key oil-importing emerging markets, the effects on US activity of a sharp contraction in energy investment and an abrupt slowdown in key oil exporters. Shifting from coal to gas
Netherland: Moving towards Gas-fired power Take the case of Netherlands which has cut coal power on cheaper availability of gas. “There is a clear shift from coal to natural gas as a raw material for electricity generation,” said Statistics Netherlands in a brief about the Nordic country’s power generation in 2019. Netherland’s thermal power generation in 2019 dropped 37 percent to 17 billion kWh from 27 billion kWh in 2018 on the back of drop in prices of gas which has fuelled 20 percent of electricity at 71 billion kWh. “Low natural gas prices as well as high carbon prices contributed to this development,” the statistics organization said.
The IEA now sees global oil demand at 99.9 million barrels a day in 2020, down around 90,000 barrels a day from 2019. This is a sharp downgrade from the IEA’s forecast in February, which predicted global oil demand would grow by 825,000 barrels a day in 2020. Indonesia: Incentivising gas usage Indonesia has sharply reduced prices of gas and encouraging greater usage and it would partly replace coal in power generation. Starting April, prices of gas stands reduced to an average of $6 / mmbtu at the consumer plant gate starting April 1. Power companies Indonesia had paid $8.4 per mmbtu in 2019 for gas. “The decline in gas prices was also applied to the electricity sector in order to provide affordable electricity for the community and support industrial growth,” Indonesian minister,” Minister of Energy and Mineral Resources Arfin Tasrif said recently. To be able to adjust the price of $ 6 per mmbtu, upstream gas prices must be reduced between $ 4-4.5 per mmbtu, and transportation and distribution costs can be reduced between $ 1.5-2 per mmbtu, he said. Indonesia plans to develop gas infrastructure installing pipelines from Aceh to East Java, then in Sulawesi and Kalimantan over the next 2 to 3 years and
Coal Insights, March 2020
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FEATURE
India’s Power Distribution Sector Needs Further Reform: IEEFA Coal Insights Bureau
P
ower distribution is the weakest link in the entire value chain of the Indian power sector, Institute for Energy Economics and Financial Analysis has said in a latest report. While headwinds are affecting the power sector as a whole, such as electricity demand slowing in tandem with the recent deceleration in economic growth, the distribution of power continues to fail as it has done for many years, primarily due to the flailing state-owned power distribution companies (Discoms), Vibhuti Garg, Energy Economist with IEEFA said in a report. “Various government reforms have been initiated to improve the sector’s commercial viability and performance, but are yet to make a sizeable dent. Discoms continue to incur huge financial losses. Absence of competition, economically inefficient tariff setting processes, lack of modern technology and infrastructure development are adding to those losses,” the report said. India has set ambitious long-term targets for its electricity sector, including 450 gigawatts (GW) of renewables by 2030, representing a total of 55 percent of planned capacity.
Financial health of Discoms
For the country to achieve its ambitious renewable targets and sustain its economic growth goals, the crippled power distribution sector must be made profitable. IEEFA found Discoms are struggling under massive debt to the thermal power sector. There is currently upwards of $100 billion of non-performing or stranded assets shared between
30 Coal Insights, March 2020
Discoms and the thermal coal- and gasfired power plant sectors. The dire financial health of state owned Discoms means these companies do not have the capital available to invest in technology and the much-needed modernisation of the national grid. Discoms are increasingly reducing power received from energy generators, including from zero marginal renewable energy projects they are contractually bound to take. Some of the state Discoms are also forcibly renegotiating legally contracted tariffs, and are failing, once again, to meet long outstanding payments to renewable energy generators. This situation is increasing the risk for renewable energy generators and their financial backers, restricting them to participate only in bids for which they can raise the capital cost for setting up new domestic energy capacity to meet energy demand growth. Reforms failed to reframe distribution sector
In order to help state owned Discoms pare their mounting losses, the central government has offered financial packages to bail out beleaguered state electricity Discoms from time to time. In 2012, the Government of India approved the Financial Restructuring Plan, aimed at improving the financial long term viability of state Discoms. Then in 2015, the GoI’s Ministry of Power launched the Ujwal Discom Assurance Yojana (UDAY ) scheme to improve the transparency, operational and financial performance of Discoms with the clear objective of reducing losses.
The crippled power distribution sector must be made profitable: IEEFA The UDAY scheme was effective in bringing down Discom financial losses and improving the national average AT&C losses in both FY17 and FY18. The gap between cost of supply and average revenue realised also dropped materially during this period. However, in FY2018/19, the tariff gap rebounded, and aggregate losses were nearly double that recorded in the previous year on account of increased rural connection under the Saubhagya scheme and state inability to reduce high aggregate technical and commercial (AT&C) losses. All up, the discom reforms have not gone far enough. Aggregate national discom losses resumed their upward trajectory in 2019. The state-owned discom’s inability to pay creditors in any timely fashion in an
54 Coal Insights, March 2020
Tear along the dotted line
Tear along the dotted line
