CCAI Newsletter October -18 by Sheikh Murad

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Vol. XLVI No. 19 Published on : 28.10.2018

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From the Editor’s Desk Production of Coal India Limited has increased considerably and supply has also started increasing in comparison to last few months. Though situation has improved but coal stock situation at both Power plants and industries are yet to recover completely from the crisis. Ongoing arrear of rakes have become the sore point for the consumers as well as CIL. Shortage of coal supply has partially been responsible for raising spot prices of electricity. CIL is expecting some let up in the fuel shortage crisis in power plants by supplying additional 60 lakh tonnes coal to pithead power stations. The Government has allowed captive coal block owners to sell 25% of their production in open market to mitigate coal crisis in the country. Rising power demand has resulted in higher dependence on costlier coal imports, though Government had been trying to reduce CAD by discouraging import of coal for the power sector. Consumers have suggested for a balanced supply mechanism so that all the consumers can be treated equally without any discrimination pertaining to supply of coal. To boost coal traffic Indian Railways has lined up 84 projects that would cost the government Rs 989.8 billion. The Prime Minister’s Office (PMO) will monitor 14 of these projects so that these can be completed between 2020 and 2022. Coal Ministry has identified 11 mines to produce coal bed methane (CMB). Of these, 10 will be worked on jointly by ONGC and Coal India Ltd (CIL), and the two will also work on one mine with SAIL.

4 | CCAI Monthly Newsletter October 2018

Content Vol. XLVI No. 19 October 2018

06 |Consumers’ Page

Official Organ of the Coal Consumers’ Association of India. Disseminates News and Views on Coal and all other sources of Energy.

08|Power

4, India Exchange Place - 7th Floor Kolkata - 700 001 Landline : +91 33 22304488 / 22621516 E-mail : sec.ccai@gmail.com Website : www.ccai.co.in

12|Domestic

Editor : Subhasri Nandi

16|Global

Annual Subscription Rs. 400/(including postage) MO/DD to be made in favour of “Coal Consumers’ Association of India”

20 |Monthly Summary of Domestic Coal

CCAI do not necessarily share or support the views expressed in this Publication.

22 |Energy Generation Report 23 |Production and Offtake Performance of CIL and Subsidiary Companies

24 |Monthly Summary of Imported

Coal & Petcoke

26 |Overall Domestic Coal Scenario

CCAI Monthly Newsletter October 2018

CONSUMERS’ PAGE Present Coal Scenario Coal India has achieved its production of 49.77 million tonnes of coal in October 2018 compared to 46.15 million tonnes in the same month of last year, a growth of 7.8%. Total production for the period of April - October 2018 is 306.24 million tonnes. Offtake stood at 50 million tonnes in October 2018 compared to 48.28 million tonnes in same month of 2017, a growth of 3.6%. Thus, total offtake for the period of April-October is 340.81 million tonnes.

Consumers’ Concern 1. Coal Stock Position Coal India has supplied 272.88 mt of coal to the power sector during April- October period, up by 8.9 per cent from the last year. Average rake loading to power sector was 202.8 rakes per day, grew by 8.2 per cent during April-October 2018. Though coal supply has improved in last few months industries are unable to run their plants smoothly due to slow materialisation of coal rakes.

2. Power Companies have urged to start Auction under Shakti Scheme again Power Plants without assured coal supply but with PPAs could not take part in Auction due to various reasons, have urged to commence Auction to provide them the opportunity to win long term supply assurance. Similarly, non-PPA holders have also requested for commencing Auction for them as per provisions of Shakti Scheme.

3. GCV slippage repeatedly found Power Consumers are repeatedly complaining of GCV slippage from different areas of ECL and BCCL. In spite of Third Party Sampling & Analysis, consum-

06 | CCAI Monthly Newsletter October 2018

ers are not satisfied with the quality specially from these two Subsidiary Coal Companies resulting in loss to the Power Plants.

4. Time lag between sanction of coal quantity and loading of rake There is huge time lag between sanction of coal quantity and loading of rake and sometimes 6 to 8 months delay for actual loading of rake. This has resulted stuck up of huge advance payment with CIL Subsidiaries. Therefore, consumers have requested to consider earlier method of payment of coal value i.e. within 48 hours of billing as it was prevalent during 2008-2016.

5. Request to expedite coal supply by rail from BCCL and MCL Companies both in the Power and Non-power Sectors are not getting adequate coal supply from Bharat Coking Coal Limited (BCCL) and Mahanadi Coalfields Limited (MCL) by rail mode. Due to this DOs are moving towards expiry with each passing day which eventually will lead to huge financial loss. Considering the situation, coal consumers have re-

quested CIL to advise BCCL and MCL for providing relief in this regard.

immediately which would enable those industries tide over the present criticality.

6. Request for supply of G10 grade coal in absence of G12 ROM coal from Amrapali mines of CCL

10. Delay in refund of excess 3% CST from MCL and SECL

Coal consumers are facing acute shortage of coal from Amrapali mines of CCL because of non-availability of G12 ROM. Though they have been assured by CCL team to provide an alternate option for supply but nothing has been done yet and DOs are moving towards expiry with each passing day which eventually will lead to huge financial loss. Consumers are eager to procure available G10 grade coal from the same mines and requested to issue the Road Delivery Orders of G10 grade so that they can to lift the coal.

7. Request for resuming normalcy in coal supply by rail from SECL,CCL & ECL Coal consumers are facing shortage of coal due to scanty supply by rail mode from Dipka, Gevra, Kusmunda, Korba and Korea Rewa region of South Eastern Coalfields Limited (SECL), RCM and KDH siding and Amrapali mine of Central Coalfields Limited (CCL) and Pandaveswar Dalurbandh siding of Eastern Coalfields Limited (ECL). Therefore, they have requested to establish a balanced supply mechanism otherwise abrupt demand would jeopardize the supply plan of the Subsidiaries.

8. Request for change of colliery from Lakhanpur OCP to Kulda OCP for lifting of coal Linkage Auction consumers lifting coal from Lakhanpur OCP (Secondary source of Samleswari OCP) have requested to change the colliery from Lakhanpur OCP to Kulda OCP as allotted G14 grade is not available in Lakhanpur OCP at present.

9. Request for resuming normalcy in coal supply from WCL to Non- power Sector Though coal production has increased by more than 9% for the period of April to September and 16.2% growth has been observed only in September in comparison to last year still industries are not receiving a single rake from WCL. Non-power Sector consumers have requested to provide atleast a few of coal rakes

While depositing payment against coal value, consumers deposited CST @ 5% instead of 2% against C-Form at requisite Quarter-end. Though they have timely submitted ‘C’ form against their transactions there is inordinate delay in refund of excess 3% from CST value to the companies from MCL and SECL (since 2011-12). Therefore, consumers have requested for arranging the refund of excess 3% CST charged by MCL and SECL.

11. Request for incorporation of Washery name in Delivery Orders (DOs) As per revised CGST circular dated 26.03.2018, when goods are directly sent by the supplier to the job worker, job worker’s name and address should be mentioned in the invoice along with the name of the buyer. Accordingly, other Subsidiaries except WCL are also mentioning the name of Washeries as advised by Ministry of Coal. Therefore consumers having FSAs with WCL have requested to incorporate the name of the Washeries in the DOs to give them desired relief.

12. Additional premium charged for conversion of rail to road mode CIL has come out with a scheme to convert linked quantity from rail to road mode on monthly basis due to huge time lag between sanction of quantity and actual rake loading. But Coal Companies are charging undue added premium when rail mode is converted to road mode. Consumers have requested Subsidiary Coal Companies to charge only the premium as per the FSA.

13 Request for lifting of 25% of MSQ for rail linked Non-power consumers of MCL MCL had allocated 75% of MSQ through rail mode and 25% through road mode for Non-power rail linked consumers. Vide notification dated 22.08.2018, it had been again notified by MCL that if rail bound non-power consumers fail to lift the said 25% of MSQ through road mode, ‘the quantity thus short lifted’ shall be treated as deemed delivered. Consumers, unwilling for Change of Mode should not be penalised by calculating the said 25% of MSQ as deemed delivered. CCAI Monthly Newsletter October 2018

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POWER Thermal power capacity addition to fall by 60% in 5 years: report Capacity addition in thermal power generation will slow down over the next five years to less than half the current pace, said ratings agency Crisil. The report, given exclusively to Mint, expects only about 35 gigawatt (GW) of new coal-fired power plants to be added to India’s power generation portfolio from FY19-23. In contrast, India added 88 GW of capacity in the preceding five years. These numbers refer exclusively to thermal power and not renewable energy, where India has a target of adding 100 GW over the same 5-year period. Crisil attributes the slowdown in capacity addition largely to two factors. In the private sector, large capacities that are under construction are stuck because of the financial muddles that promoters find themselves in. Second, new project announcements are limited as players with the appetite to add capacity are opting to buy out some of the bankrupt assets that are available at reasonable valuations. Lenders have proved reluctant to extend further capital to fire-up stuck power projects as the future of several of these is uncertain and many risk liquidation. In September, Mint had reported that banks had decided to refer massive bad loans in the power

8 | CCAI Monthly Newsletter October 2018

sector to the National Company Law Tribunal, after failing to settle these outstanding liabilities with one-time settlements.

Thermal power demand outstrips projections, coal production The demand for thermal power has outpaced demand projections and coal production. According to the National Power Portal, 121 out of 123 power plants have less than five days of coal stock. This is worse than the situation a month ago when 76 out of 121 thermal plants had less than seven days of coal stock. The low coal stock position can be attributed to a higher-than-expected power generation. India’s cumulative power generation from April 1 to October 15 stood 4 billion units higher than program (planned) generation at 687 billion units. “Coal production has not been able to keep pace with the spike in power demand. In the current financial year till October 15, there has been a 7 per cent annual growth in power generation. But the growth in thermal power generation has been just 4.64 per cent due to lower coal availability,” a power sector official told.

Power Ministry extends date for industry comments on uniform tariff framework The Power Ministry has extended the date for submission of comments on the proposed amendments to Electricity Act, 2003, which aims to rationalise electricity tariffs by doing away with differential tariffs for different types of users. The draft amendment to Para 8.3A of the National Tariff Policy, in which the Ministry has proposed that tariff design and cross subsidy will no longer be based on differential tariffs for different types of use but be solely based on sanctioned load and consumption, was circulated last month. The deadline for submission was set at September 20. The date has now been extended till November, 5, according to the Ministry’s letter addressed to the key industry stakeholders. The proposal, apart from going away with currently used categories of electricity consumers such as residential, industrial, commercial, agricultural for identifying the tariffs, proposes to penalise consumers for exceeding the sanction load. At the same time, it offers rebates to incentivise bulk customers to take supply at higher voltage category. In what could be a boost to e-mobility sector, the Ministry has also proposed creating a separate tariff category for EV charging stations.

at ICRA Ratings said: “International coal prices increased 20% between January and September. This was coupled with Rupee seeing a sizeable depreciation against the US Dollar leading to an upward pressure on cost of purchase for distribution utilities. As a result augmentation of domestic coal supplies through higher mining activities and improved rail infrastructure remains crucial for the sector from a cost control perspective.”

No coal, Karnataka’s thermal power plants on verge of shutting down A shortage of coal has affected power production in Raichur thermal power plant (RTPS) while the Bellary and Yeramarus plants have stock for six more days. With the chief minister and chief secretary’s letters to Union power and coal minister Piyush Goyal drawing a tepid response, chief secretary TM Vijay Bhaskar left for Delhi to sort out the issue. Sources said Bhaskar was working to break the deadlock between Western Coal Fields limited (WCL) and Karnataka Power Corporation Limited (KPCL) to restore the “promised” coal stock to the latter. At the meeting, the Union coal secretary is said to have “assured” Bhaskar that the Centre would try to ramp up production from WCL and Singareni Coal Fields Limited (SCL) in Telangana to fulfil Karnataka’s coal requirements. It was also conveyed to Karnataka that coal shortage is a nationwide problem.

Rising electricity demand in India Spot power bids hit ceiling as leading to costlier coal imports: states rush to ensure reliable ICRA power ahead of elections Rating agency ICRA believes rising power demand has resulted in higher dependence on costlier coal imports as supplies from domestic sources are still insufficient to meet increased energy demand.

Preparations for the upcoming elections have set the spot power market on fire, with state power distribution companies offering to pay more than the asking price just to ensure consistent supply.

Power demand growth remained steady at 5.6% during the first five-month of 2018-19. Increased demand was met by higher generation from thermal and renewable sources, which is also reflected in an improvement in thermal power capacity utilisation to 60.6% during this period against 59.1% in the previous corresponding period.

Discoms of states like Maharashtra, West Bengal, Bihar and Tamil Nadu are placing desperate bids to buy electricity at Rs 20 per unit, 40% more than the asking price. Aggressive bids being placed by discoms in western and southern region to avoid load shedding have led prices to peak on the exchange at a 10-year high of Rs 18 per unit, with the average hovering at Rs 6-8 per unit.

Girish Kumar Kadam, sector head & vice president

CCAI Monthly Newsletter October 2018

Buy bids aggregating 10,000 MW at Rs 20 per unit, the maximum price that can be quoted at the exchange as per power regulator’s norms, are being submitted by many states at various time blocks in a day, sources said. However, high demand has not brought any relief to stressed thermal power plants that have not been able to make use of the situation due to lack of finances to buy coal. As per industry sources, 85% of the volume bought on the exchange is from power distribution utilities. Discoms of northern states like Punjab, Haryana, Delhi and Rajasthan contributed to 55% of the buy bids at the exchange.

Power producers urge Centre to speed up revival of gas-based power plants The Association of Power Producers (APP) has written to the Centre requesting the revival of gas-based power plants. The industry has seen no progress since a meeting held in August on the issue, chaired by Sanjiv Nandan Sahai, Additional Secretary, Ministry of Power. In a letter addressed to the Additional Secretary, the APP has noted that India has gas-based plants with installed capacity of about 25 GW, of which around 11 GW are stranded. The rest are not economically viable due to short supply of natural gas from domestic sources or because of prohibitive prices from international sources. “There is an increase in demand, especially peak demand, with no further capacity to be added,” APP said. “During September 2018, energy generation from renewable sources varied between 481 million units and 220 million units, leading to the market cleared price at Indian Energy Exchange reaching as high as Rs. 14.08 a unit, and this upward trend may continue if the situation is not improved.” The plant load factor (PLF) of gas-based plants has dropped by 43 per cent over the past seven years, from 66 per cent in FY11 to 23 per cent in FY18, the APP letter said. Considering positive indicators for power demand increase in the near future, and given that no base load capacity addition is planned further, the gas-based plants could be revived, it added. Giving a detailed presentation on the issues faced by gas-based projects, including the price of gas be-

10 | CCAI Monthly Newsletter October 2018

ing denominated in US dollar, the association has requested the Centre to take adequate measures towards long-term sustainable revival of the plants.

Discom claims annual loss of Rs 150 crore due to power theft Power discom TPDDL, supplying electricity to nearly 70 lakh consumers in north and northwest Delhi, claimed it has suffered a huge annual loss of Rs 150 crore due to power theft in some pockets of its distribution area. Its aggregate technical and commercial losses range between 50 per cent and 60 per cent, against the overall figure of 8.4 percent, in 24 villages in Narela and Bawana areas. “Power theft leading to annual revenue loss of over Rs 150 crores from Narela and Bawana was reported in 2017-18,” a spokesperson of Tata Power Delhi Distribution Limited (TPDDL) said. The AT&C (aggregate technical and commercial) losses have been brought down from 53 per cent to 8.4 percent since TPDDL took over from erstwhile Delhi Vidyut Board (DVB) in 2002, he said.

CCAI Monthly Newsletter October 2018

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DOMESTIC Captive coal miners allowed to sell 25% output in open market

A proportion this coal is stuck in remote mines and the power plants will have to lift the stocks by rail or road.

The government has allowed captive coal block owners to sell 25% of their production in open market and provided some flexibility in coal output as it kick-started a fresh round of captive coal auctions after a gap of about 15 months.

According to the Central Electricity Authority (CEA), 22 non-pithead power stations had less than four days’ fuel stock on October 22. Among the pithead stations, a large number of Central governmentowned NTPC power plants had a maximum of two days’ stock. The fuel shortage is reflected in the volatility in spot electricity tariff. Round-the-clock average tariff at IEX was Rs. 6.92/kWh.

The coal ministry has invited tenders seeking bids for 18 captive coal blocks to non-power plants in Jharkhand, Madhya Pradesh, Maharashtra, West Bengal, Odisha and Chhattisgarh. “The successful bidder shall utilise a minimum of 75% of the actual production in the specified end use plants and is allowed to sell up to 25% of the actual production in open market. No additional premium will be charged on such sale in the open market,” the bid guidelines said.

CIL: Higher coal production will improve supply State-owned Coal India Ltd is expecting some let up in the fuel shortage crisis in power plants by the first week of November. The relief will be through additional allotment of 60 lakh tonnes coal to pithead power stations, by diluting pit-head stock, and a ramp up of daily production to 18 lakh tonnes from 16 lt.

12 | CCAI Monthly Newsletter October 2018

CIL, ONGC to produce coal bed methane from 10 new mines; support SAIL at Parbatpur The Coal Ministry has identified 11 mines to produce coal bed methane (CMB). Of these, 10 will be worked on jointly by ONGC and Coal India Ltd (CIL), and the two will also work on one mine with SAIL. “It was decided in a meeting that ONGC and CIL will partner to produce CBM from 10 new mines that Coal India will open. Initially, ONGC will harness the gas and then CIL will extract coal from them… the first agreement for harnessing CBM through this route is expected to be signed as early as next month,” a Coal Ministry official told. “In addition to the mines with CIL, the two (ONGC and CIL) will also help develop Steel Authority of

India Limited’s Parbatpur coal block. Here, too, ONGC will first harness the CBM,” the official said.

India relaxes curbs on petcoke imports India relaxed some restrictions on imports of petcoke for use as feedstock in some industries, the Directorate General of Foreign Trade (DGFT) said. India allowed imports of 500,000 tonnes of petcoke per year by aluminium companies and 1.4 million tonnes of petcoke by calcined petcoke makers, a trade ministry notification posted by the DGFT on Twitter showed. Usage of petcoke, a dirtier alternative to coal, in India has come under scrutiny due to rising pollution levels in major cities. India’s imports of petcoke have declined this year as cement companies substituted some of their petcoke with coal to avoid production delays due to pollution-related policy changes. As the world’s largest consumer of petcoke, India imports over half its annual petcoke consumption of about 27 million tonnes, mainly from the US. Local producers include Indian Oil Corp, Reliance Industries and Bharat Petroleum Corp.

Captive power units urge PMO to address coal supply issue, seek rate parity Power industry body ICPPA has requested the Prime Minister’s Office (PMO) to take steps to address the issue of coal availability and its supply. The Indian Captive Power Producers Association (ICPPA) members include players from key sectors such as steel and aluminium. In the letter to PMO, dated October 4, ICPPA said aluminium is a highly power-intensive industry and around 14,500 kWh (kilowatt hour) units are used for the production of 1 tonne of aluminium metal, which requires 11.7 tonne coal. Supply of coal is a long-standing issue for the captive power producers who unlike the IIPs (independent power Producers) don’t produce it for commercial purpose. ICPPA further noted that as per MoC’s (Ministry of Coal) notification dated February 15, 2016, 25 per cent of coal allocation should to be done to CPPs (captive power producers), in the proportion of the FSAs.

steel India can compete with China if it makes quality steel: Steel minister IUnion Steel Minister Chaudhary Birendra Singh said that producing quality steel could help India compete with China, even though China’s total production is around 8-9 times that of India. He was speaking at the Indian Steel Association (ISA) Steel Conclave in the capital. Singh said that despite having brilliant engineers and scientists, India wasn’t leading innovation in steel technology. “Updating technology is not innovation,” he said. This would help reduce the import bill of an estimated $28 billion that is required to expand capacity to 300 million tonnes from the existing 135 million tonnes by 2030. He said that innovation was the solution to the input costs that have risen for steel makers who import raw materials. He said the industry needed to come up with alternatives to imported materials like coking coal. Responding to news about a recent report that stated that 18 out of 24 steel bar brands had failed quality tests, Singh said that the introduction of BSI standards in steel would take care of this problem, because only brands meeting standards could participate in government tenders. Singh said he was confident that the country would retain its position as the world’s second largest steel producer at the end of the year. India overtook Japan to reach this milestone a in March this year. The minister said that climate change goals which India has committed to under the Paris agreement and the price of raw materials would be a challenge for the steel industry.

Current growth cycle in steel sector to last for 24 months: Sushim Banerjee We recall that the market scenario in Q1 of FY18 was dull. Prices were down; capacity utilisation was poor, CCAI Monthly Newsletter October 2018

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expansion plans were put on hold and PMI exhibited bleak forecasts of new order booking and were on the brink of contractionary mode. In the next 3-4 months’ time, the scenario got reversed. While raw materials were no longer moving sharply southward, finished product prices commenced upward journey on the back of sudden investment push and gradually rising industrial production despite the temporary complexities of GST implementation. GDP dropped down to 5.6% in Q1, marginally rose to 6.3% in the second quarter, subsequently jumped to 7.0% in Q3 before ending the year with 7.7% growth in Q4. The economy clocked a record 8.2% rise in Q1 of FY19 and may achieve a growth of 7.5% in Q2 of the current fiscal. As this analysis briefly sums up the background of growth of steel industry, it has become increasingly apparent that the scenario is highly dependent on a corresponding health of global economy and the behaviour of China, still the market leader in production and consumption. The Global economy rose by 3.7% in 2017 and is projected to grow by the same rate in the current CY. The impact on steel prices was directly linked with growth momentum in the economy. HRC export price went up from $ 450/t fob Tianjin in June’17 to $ 548/t in October’18 with both global Iron Ore prices ($ 57.15 /t cfr China in June’17 to $ 71.5/t in October’18) and Metallurgical coal prices ( from $ 146.5/t fob Australia in June’17 to $ 214.5/t in October’18) exhibiting the rising trend.

CEMENT Cement prices may increase by up to 10% in next 6 months: CMA Cement prices could go up by up to 10 per cent in the next six months in order to compensate for the increased fuel and transportation costs, according to a top official of industry body CMA. As per Cement Manufacturers Association (CMA), the industry has witnessed 14 per cent growth in the first half of 2018-19-- the first double digit growth since 2009-10 -- thereby providing an opportunity for correction of prices which have remained stagnant

14 | CCAI Monthly Newsletter October 2018

for the last six to seven years. “If not for anything else, there is a very dire need to correct the (cement) pricing. In the last one year we have seen 60-70 per cent rise in cost of fuel. At least to recover some portion of this increase, we need to increase the prices of cement,” CMA President Shailendra Chouksey told PTI. He further said cement prices have been “almost stagnant for the last six to seven years” but the cost and normal inflation are “much more than the pricing that we have been able to raise”. There is surplus capacity in the cement industry but no pricing power, Chouksey said, adding even after witnessing pick-up in demand, “prices are still languishing at very very low levels”.

RAILWAYS Indian Railways’ South Eastern Railway earnings from freight traffic rise to Rs 6007.17 crore South Eastern Railway has earned Rs 6007.17 crore during the first half of the current financial year from originating freight traffic, an SER spokesman said. The amount earned from April to September of 201819 by the SER is Rs 348.59 crore more than the corresponding period of last financial year, thus registering a growth of 6.16 per cent, SER spokesman Sanjoy Ghosh said. “SER’s total freight loading during April-September of the current fiscal has been 75.06 million tonnes as against 73.56 million tonnes loaded during the corresponding period of last year, recording a growth of 2.04 per cent,” he said. There has been a massive growth of 50 per cent in coal loading during the first six months of the current fiscal in comparison to the corresponding period of last year, he said. The major components of freight loading during the above period were 16.45 million tonnes of coal, 39.52 million tonnes of iron ore, 7.56 million tonnes of pig-iron and finished steel and 5.46 million tonnes of cement, Ghosh said.

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GLOBAL Australia’s coal sector hopeful A new report prepared by Commodity Insights for the Minerals Council of Australia forecasts that the demand for metallurgical coal to 2030 will grow by over 95Mt, from 275Mt in 2017 to 372Mt in 2030; this is a 2.3% growth or around 7.5Mt per annum. Such a growth would be the equivalent of a large export mine being added to the market every year to 2030, the report states, and it represents approximately 56% of current Australian met coal exports. The rise would be led by China and India, particularly because of the latter’s solid-to-strong economic growth, along with ongoing industrialisation and urbanisation, both of which drive demand for steel. China’s continued solid steel production will also push up the demand for coal, as well as the inability of its domestic production to keep pace with demand, something that will also happen in India. “Even based on the conservative assumptions used in the Commodity Insights report, this demand growth represents a major opportunity for our world-class coal producers and the Australian economy,” Minerals Council of Australia CEO, Tania Constable, said in a media statement.

Mining’s value to Australia hits new heights 16 | CCAI Monthly Newsletter October 2018

Australian Bureau of Statistics (ABS) figures show the mining industry has contributed 8.8 per cent of the country’s gross value in 2017–18, a figure around 87 per cent higher than 1994–95 levels (4.7 per cent). The ABS figures were part of a wider report on Australia’s economy, which grew by 2.8 per cent to $1.8 trillion in 2017–18 for its 27th consecutive year of growth. In the same time period, mining grew as an industry by 2.9 per cent in 2017–18. Both of these growth figures were above the 10-year average of 2.6 per cent. “The annual growth rate is consistent with the quarterly growth rates published for the June quarter,” said ABS chief economist Bruce Hockman. Queensland Resources Council chief executive Ian Macfarlane cited the growth of the coal and gas sectors — particularly liquefied natural gas (LNG) — as reasons for the growth reported by the ABS.

China struggles to end coal habit despite climate pledges China’s appetite for coal is rising again despite a surge of investment in alternative energies, limits on coal use, and the establishment of “no-coal zones” throughout the country designed to help it meet climate pledges.

“China embarked on an energy transformation in terms of cutting coal and developing renewables, but we are now facing difficulties on both fronts,” Li Shuo, senior climate adviser with Greenpeace told. Though some studies have suggested China’s total climate-warming carbon dioxide emissions peaked at 9.53 gigatonnes in 2013, well ahead of its official target of “around 2030”, the environmental group said they could reach a new high this year or next. Coal production has risen 5.1 percent in the first threequarters of this year to 2.59 billion tonnes. When US President Donald Trump said he was pulling the United States out of the Paris climate accord last year, China reaffirmed its commitments to tackle its use of coal, by far its biggest source of carbon emissions. The country has made progress in cutting the share of coal in total energy use, with the figure expected to drop to 58 percent by 2020, down more than 10 percentage points in a decade. It has also met a 2020 target to reduce the amount of carbon dioxide (CO2) it emits per unit of growth. But the absolute volumes of both coal and CO2 remain by far the world’s highest, and are still set to rise.

US coking, thermal coal exports rise in 2018 on India, Europe Growing export demand for US coking coal has supported prices, and rising shipment volumes into India, Brazil and Europe including Turkey have been highlights so far in 2018, according to an analysis by S&P Global Platts. While Brazil took the lead in US exports of coking coal at over 5 million mt over the first eight months of the year, US exports of coking coal to India surged to 4.1 million mt between January to August. This was almost double the quantity of the year-ago period, according to US Census data. India has also stepped up purchases of US thermal coal. India is on a drive to triple its steel output by 2030, via integrated steelmaking plants, and a government-led policy has stressed the need to expand and diversify its coking coal supply. Steel demand in India is expected to track GDP at 7%-plus annual growth rates, as public spending on infrastructure and affordable housing supports demand for steel, Citi’s Asia commodities strategist Tracy Liao said in a report. The Netherlands, home to Tata Steel IJmuiden and ports serving steel plants in Germany and the Benelux region, saw US export coking coal volumes spike. The exports rose to 3.85 million mt over January-

August, from 1.96 million mt in the year-ago period. Europe and Turkey was the destination for 17 million mt of US coking coal exports over January-August, up 20% on the year earlier period.

US coal producers recovered on the backs of a new coal export boom to Asia - Report US coal producers have recovered on the backs of a new coal export boom to Asia, the Corps of Engineers announced it would revive and speed up its permit review of the long-embattled Millennium Bulk Terminals export coal terminal in Longview, Wash. Planned since 2012, the facility has already received its Environmental Impact Statement (EIS) in 2017, issued after many delays by Cowley County and the state’s Department of Ecology. Millennium says it wants to further develop the site for other bulk commodities. According to the Energy Information Administration, US coal exports to Asia more than doubled in 2017. In the first half of 2018, the US shipped about 23 million metric tons of coal to South Korea, Japan and China. But the project remains bitterly opposed by most state and local officials, allied with national environmental groups opposed to any export of coal because of climate change. They have used a variety of delaying tactics to stop it. In 2017, the state Department of Ecology denied a key water permit, citing increased vessel traffic and damage to wetlands.

Indonesia sets Oct HBA thermal coal price at $100.89/mt, down 3.7% on month Indonesia’s Ministry of Energy and Mineral Resources set its October thermal coal reference price, also known as Harga Batubara Acuan or HBA, at $100.89/ mt, down 3.7% month on month, but up 7.3% year on year. The ministry had set the price for September at $104.81/mt, and for October 2017 at $93.99/mt. The HBA is a monthly average price based 25% each on Platts Kalimantan 5,900 kcal/kg GAR assessments, Argus-Indonesia Coal Index 1 (6,500 kcal/kg GAR), Newcastle Export Index (6,322 kcal/kg GAR) and globalCOAL Newcastle (6,000 kcal/kg NAR). In September, the daily Platts FOB Kalimantan 5,900 kcal/kg GAR coal assessment averaged $73.32/mt, down from $77.68/mt in August, while the daily 7-45 day Platts Newcastle FOB price for coal with a calo-

CCAI Monthly Newsletter October 2018

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rific value of 6,300 kcal/kg GAR averaged $114.43/ mt, down from $118.29/mt in August. The HBA price for thermal coal is the basis for determining the prices of 77 Indonesian coal products and calculating the royalty producers have to pay for each metric ton of coal sold. It is based on 6,322 kcal/kg GAR coal with 8% total moisture content, 15% ash as received and 0.8% sulfur as received.

Indonesia wants to export more coal, buyers ignore the call Indonesia wants to export more coal in order to earn U.S. dollars to shore up its faltering currency, but the problem is buyers don’t seem to be hearing the message. Heavy equipment load coal into a truck at PT Adaro Indonesia coal mining in Tabalong, Kalimantan island, Indonesia October 17, 2017. Indonesia’s coal exports dropped to 24.8 million tonnes in September, down 12.4 percent from August’s 28.3 million tonnes and 10 percent from 27.6 million tonnes in the same month last year, according to vessel-tracking and port data compiled by Refinitiv. If the drop isn’t worrying enough, it comes even as the price of lower-grade Indonesian coal is at its widest discount to higher-quality Australian thermal coal. Indonesia is planning to increase its 2018 output of coal to around 507 million tonnes, up from a previous target of 485 million tonnes. The aim is to convert the additional U.S. dollars from sales of the polluting fuel into rupiah, which has dropped about 12 percent so far this year against the U.S. currency. In theory, importers should be keen to ramp up purchases of Indonesian coal, as the massive discount to Australian cargoes more than compensates for the lower energy value. The price of thermal coal at Australia’s Newcastle port, as assessed by Argus Media, was $112.25 a tonne in the week ended Oct. 5. Low-rank Indonesian coal, with an energy content of 4,200 kilocalories per kilogram (kcal/kg), was at $38.88 a tonne at the end of the same week, according to Argus. This represents a discount of $73.37 a tonne - the widest on record, exceeding the $61.07 recorded in November 2016, according to the Argus data.

Trump’s coal export bid runs into headwinds next year, say feds President Trump’s much-touted coal exports are going to feel a pinch in 2019, according to the Energy

18 | CCAI Monthly Newsletter October 2018

Department. The Energy Information’s Administration’s latest monthly energy projections released showed coal exports falling a substantial 7 percent next year as coal demand slumps. The 7 percent drop anticipated in the October projections would offset the 12 percent increase in coal exports in 2018. Trump touted coal exports during a midterm campaign rally at the end of September in West Virginia, referring to the increase in exports as part of his promise to put miners back to work. The Trump administration has made coal exports part of its “energy dominance” agenda, in which oil, natural gas, and coal exports are central to success. Overall, however, coal consumption will fall 2 percent by the end of the year, despite the 12 percent increase in coal exports, according to the new report. “The production decrease is largely attributable to a forecast decline of 4 percent in domestic coal consumption in 2018,” it explained. EIA expects coal production to decline by another 2 percent in 2019 as coal exports, and coal consumption, drop by 7 percent and 5 percent, respectively.

Large miners hit pay dirt with higher coal prices For all the bullish talk about metals of the future, miners are making some of their biggest profits from heavy industry stalwart coal. Base metals from copper to zinc have tumbled this year, caught up as a proxy for trade fears and emerging-market jitters. Meanwhile, coal has ground steadily upwards, supported by strong demand from top commodities user China, and is trading near its highest price in more than six years. That is translating into big paydays for producers. Glencore is in touching distance of seeing its coal mining profits eclipse copper earnings this year for the first time since it sold shares in London in 2011. Anglo American’scoal earnings almost trebled in the last four years, despite lower production. The fuel is forecast to contribute a whopping 43% of Anglo’s profits this year despite it operating some of the best platinum, diamond and copper mines in the world. It was not supposed to be this way. Almost everyone in metals is universally bullish on copper, from the CEOs of the biggest mining companies to investors and analysts, all expecting increased demand from the electrification of cities and cars and constrained supply. Coal, on the other hand, has been widely shunned by both investors and many producers.

MONTHLY SUMMARY OF DOMESTIC COAL Comparative Price of Domestic Coal: Power/Non-power. *The price shown in the Chart below is without: (a) Surface Transportation Charges. (b) State specific taxes. (c) Coal company or area wise charges if any. (d) Evacuation Facility Charges INR 50 per tonne w.e.f. 00:00 of 20.12.2017 GCV (Kcal/kg) (Mid-value)

G3-6400-6700

G5-5800-6100

G7-5200-5500

G10-4300-4600

G11-4000-4300

G12-3700-4000

Basic ROM price (Rs./te)

3144/ 3144

2737/2737

1926/2311

1024/1228

955/1145

886/1063

Tentative Ex-Mine Price*

4447/4447

3941/3941

2932/3411

1809/2063

1724/1959

1638/1858

coal Coal India (CIL) managed a 10.6% production growth during April-September and an 8.1% jump in total supplies against the previous corresponding period. Coal supplies to power sector were up 10% during the period. The mining PSU produced 256.47 million tonnes during the period, a 24.59 million tonnes rise, against 231.88 million tonnes in the previous corresponding period. Total coal offtake at 290.81 million tonnes during the period was 21.81 million tonnes more over 269 million tonnes achieved during the previous corresponding period. India’s coal import increased substantially by 35 percent to 21.1 million tonnes (MT) in September, as against 15.61 million tonnes in the corresponding month previous fiscal. The rise in imports comes at a time when the captive power plants in the country are grappling with the issue of coal shortages. The government has allowed captive coal block owners to sell 25% of their production in open market and provided some flexibility in coal output as it kick-started a fresh round of captive coal auctions after a gap of about 15 months. The coal ministry has invited tenders seeking bids for 18 captive coal blocks to non-power plants in Jharkhand, Madhya Pradesh, Maharashtra, West Bengal, Odisha and Chhattisgarh. State-owned Coal India Ltd is expecting some let up in the fuel shortage crisis in power plants by the first week of November. The relief will be through additional allotment of 60 lakh tonnes coal to pithead power stations, by diluting pit-head stock, and a ramp up of daily production to 18 lakh tonnes from 16 lt.

Railways In order to double coal dispatch capacity from Umred siding of Western Coalfields Limited (WCL), the Nagpur Central Railway (CR) is developing a new station at Makardhokda between Butibori and Umred. The station would be ready by October 15, said senior Railway official. With an increasing share in the freight cargo, Indian Railways has lined up 84 projects that would cost the government Rs 989.8 billion to boost coal traffic. The Prime Minister’s Office (PMO) will monitor 14 of these projects so that these can be completed between 2020 and 2022. “The projects will cover 9,259 km. Indian Railways increased freight rates by 8.75% for major commodities such as coal, iron and steel, iron ore and raw materials for steel plants. This could possibly lead to a spike in inflation. However, the freight rates of cement and petroleum (including diesel) have not been increased.

power Power tariff touched a decade high of Rs 17.61 per unit in the spot market due to low hydro and wind energy production and coal shortage at thermal plants. “Spot power price for supply touched almost 10year high of Rs 17.61 per unit in spot trading on Indian Energy Exchange (IEX). The average spot power price was also high at Rs 7.64 per unit at IEX,” a source said.

20 | CCAI Monthly Newsletter October 2018

The country’s power sector is poised to attract investments worth Rs 11.56 trillion between 2017 and 2022. Investments are expected to flow into thermal, hydro, nuclear and renewables segments. Between April 2000 and June 2018, FDI (foreign direct investment) inflows in the power sector reached $14.18 billion, accounting for 3.64 per cent of the total FDIs drawn by the country. A report by the Indian Brand Equity Foundation (IBEF) attributed the foreign investments into power sector to the 100 per cent FDI allowed in the sector under the automatic route. The Supreme Court has allowed states that buy power from large projects of the Tata, Adani and Essar groups to approach the central electricity regulator for a tweak in contracts to allow the producers to bill these states for higher cost of imported coal. The decision is seen as a major relief for the ailing power plants, built at a cost of Rs 50,000 crore, and their investors. The shares of Tata Power closed 12.5% higher while Adani Power rose 18.7% on news of the order. Captive power consumers, who primarily run their electricity generation units to cater to own industrial production demand, have expressed dissatisfaction over the government’s recent move of prioritising power production utilities and central government companies for loading railway rakes for coal transportation. Preparations for the upcoming elections have set the spot power market on fire, with state power distribution companies offering to pay more than the asking price just to ensure consistent supply. Discoms of states like Maharashtra, West Bengal, Bihar and Tamil Nadu are placing desperate bids to buy electricity at Rs 20 per unit, 40% more than the asking price.

CEMENT Cement production is expected to grow at 6-7% in the current fiscal year, driven by pick-up in affordable and rural housing segments and infrastructure, a report said. However, rising costs are likely to put pressure on the operating profitability of cement firms in the coming quarters, sorces said in its report, adding the manufacturers’ ability to secure price increases remains the key. India Ratings and Research (Ind-Ra) maintained a stable outlook on the domestic cement sector for the remaining period of this fiscal. The agency said it expects that the overall demand conditions will remain stable for the Indian cement manufacturers, considering a gradual economic growth forecast across cement end-markets, with real estate and infrastructure helping sustain volumes. Shailendra Chouksey, president of the Cement Manufacturers Association (CMA), has warned that cement prices could rise by up to 10% due to growing fuel and transportation costs. The local industry grew by 14% in the first half of the 2018 – 2019 year, according to the Press Trust of India.

steel Union Steel Minister Chaudhary Birendra Singh said that producing quality steel could help India compete with China, even though China’s total production is around 8-9 times that of India. Singh said that despite having brilliant engineers and scientists, India wasn’t leading innovation in steel technology. “Updating technology is not innovation,” he said. This would help reduce the import bill of an estimated $28 billion that is required to expand capacity to 300 million tonnes from the existing 135 million tonnes by 2030. India’s crude steel output increased 3.7% to 8.8 million tonne (mt) in August 2018, according to the World Steel Association (Worldsteel). The country had produced 8.5 mt during the same month last year, the global industry body said in its latest report. “Global crude steel production was at 151.7 mt in August 2018, a rise of 2.6 per cent compared to August 2017, it added. China’s steel production for August stood at 80.3 mt, an increase of 2.7% as compared to 78.2 mt in the same month of 2017. The Steel Ministry’s focus is on strengthening the fundamentals of the industry and not on calls for hiking anti-dumping duties in the light of steel price fluctuations in the international market. Referring to calls to revise anti-dumping duties, Secretary, Ministry of Steel, Binoy Kumar, told, “These are matters which keep happening. The prices move up and down frequently. I think we should not concentrate too much on that. We should concentrate on the basics of our industry, the issue of raw materials and logistics.” CCAI Monthly Newsletter October 2018

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22 | CCAI Monthly Newsletter October 2018

6780

BHUTAN IMP

Source CEA

OCT-2018

60.13

65.24

73.51

TOTAL

5000

1265000

NUCLEAR

BHUTAN IMP

38500

130000

ACTUAL*

59.95

HYDRO

1091500

PROGRAM

273980.27

THERMAL