Indian domestic thermal coal production surplus unlikely to hamper near-term import growth

Singapore — An uptick in Indian thermal coal production may not pivot buyers away from imported material immediately due to an acute lack of logistics and infrastructure facilities in the country, market sources said this week.

Coal India Limited, the largest coal producing company in the world, with its headquarters in Kolkata, was heard to have raised its production and diverted some excess tonnage to the industrial sector amid increased domestic coal availability, sources said on the sidelines of an industry event in Goa earlier this week.

CIL produced 63.11 million mt of coal in January, up 8.8% from December, according to one north India-based trader.

This figure represented a 6 million mt rise on the year -- and marked the company's highest production since it achieved 72.3 million mt in March 2018, according to S&P Global Platts Analytics.

The rise in production was indicative of domestic output recovering from a six-year low due to an extended monsoon period throughout August-October.

CIL could not immediately be reached for comment on the matter.

Indian power plant stockpiles have been creeping up over the past three weeks, mainly due to the purchase of cheaper domestically produced coal, according to sources.

Stockpiles at Indian power plants have reached 36.2 million mt, up 1% on the week and sufficient for 20 days of coal burn at a daily consumption rate of 1.80 million mt, according to the latest data from India's Central Electricity Authority.

Import appetite

A south India-based trader said this week that CIL's move to ramp up its domestic production was likely a temporary measure, amid a backlog from last year that was not produced due to rain and logistical issues.

"Coastal-based power plants are designed to consume seaborne coal, they would be hungry for the imported materials hence overall import volume may not get affected on a yearly basis," the trader added.

Sources said that coastal plants have remained active in seeking arbitrage opportunities for Colombian 6,000 kcal/kg NAR coal, with trades heard concluded at $66.50-$67/mt CFR India East earlier this week for March loading on a Capesize vessel basis.

One source based in west India said Indian domestic coal supply may also have improved after the monsoon disruption in October last year.

Most if not all Indian power plants are sufficiently stocked now, he added.

"Coal prices at west India ports are coming down amid high stockpiles comprising both domestic and seaborne materials, which might affect the import volume," said a west India-based trader.

A north India-based trader noted pockets of Indian seaborne demand but added that buying sentiment was weak amid the coronavirus outbreak and rise in domestic supply as CIL's production recovered from the monsoon season.

India's thermal coal imports totaled 16.30 million mt in December, up 1% on the month and almost 12% higher than a year earlier, according to coal trading house Iman Resources.

"We remain cautious that Indian domestic production could reach its production target," said a coal analyst from S&P Global Platts Analytics. "On a calendar year basis, our forecast for India's domestic coal production is 735 million mt for 2020, which is only 26 million mt more than our forecast for 2019. We expect growth in 2021 to come in only slightly higher at 746 million mt."

"The availability of coal wagon might limit domestic coal flows, encouraging seaborne thermal coal demand. Demand for imported coal from the non-power sector will continue to surge amid limitation in domestic infrastructure and transportation in India," said the analyst.