India Ratings and Research (Ind-Ra) believes coal imports are to remain tapered over 4QFY21, on the back of elevated import prices, leading the players to resort to higher domestic coal consumption over imported coal, especially for non-coking coal. Import prices are likely to remain elevated in the near term, with increasing supply concerns and poor weather conditions in Australia, logistics/rail issues in South Africa leading to a shortage and escalated sea freight rates amid the empty vessel shortage.
Ind-Ra has published the February 2021 edition of its credit news digest on India's coal sector. The report highlights the demand-supply scenario, price trends, imports in both India and China, encompassing non-coking coal and coking coal, while also evaluating at the impact of end-user industries on India’s coal sector. The report also covers the recent updates on commercial coal mining.
Coal offtake declined 4.1% month on month (mom) and 6.6% year on year (yoy) in February 2021 to 56.5MT, driven by a 5.2% mom lower domestic power demand. The offtake was lower also due to sustained high inventory levels at power stations. Accordingly, while domestic coal production improved marginally in February 2021 to 67.5MT, higher 1.5% mom, it was lower 6.1% yoy. Overall, coal production and offtake were 2.9% and 5.0% lower yoy respectively over April 2020-February 2021.
The overall coal imports were lower 19% yoy over April-December 2020 - thermal coal imports reduced 20.6% yoy and coking coal imports declined 13.7% yoy. Imports are likely to have tapered on the back of increasing import prices. The share of imports in the total domestic consumption was 23.7% over April-December 2020 (9MFY20: 28.1%).
Over 11MFY21, Australia’s share in Chinese coking coal imports stood at 35.5% (11MFY20: 45.8%) while the absolute quantity reduced 38.6% yoy, higher than overall drop in Chinese coking coal imports, 20.8% yoy. Over January-February 2021, there were no imports from Australia in China, indicating a continued aversion to import from Australia. While such aversion is likely to keep the coking coal import prices subdued in the medium term on the back of an oversupply in the global market amid low ex-China demand, increasing supply concerns driven by a temporary port shutdown due to poor weather conditions and disrupted rail services in Australia shall lead to elevated prices in the near term.
Average import prices for thermal coal continued to rise in March 2021, especially South African coal, which increased 8%-9% mom. The increase in prices were fuelled by a continued shortage of thermal coal at Richards Bay Coal Terminal port amid the disruption of rail services of the state-owned rail freight operator - Transnet SOC, increased demand as the Chinese market opened up after Lunar Year holidays and a temporary shutdown of Australian port curtailing thermal coal supplies, a close substitute. The sea freight rates continued to increase on the back of a shortage of vessels.
Under the second phase of commercial coal mine auctions, the Ministry of Coal has offered 67 coal mines through Notice Inviting Tenders released on Mar.25, 2021. Such offered coal blocks have a total geological coal reserve of 36.0BT. 37 coal blocks are fully explored and 30 are partially explored. Initial bids are to be submitted by May.27, 2021, followed by the final online auctions from Jun.28, 2021 to Jul. 28, 2021 and the successful bidders shall be announced on Aug. 02, 2021.
