India's thermal coal imports likely to rise ahead of summer amid low stocks

India needs to increase thermal coal imports to meet rising power demand during the peak summers, even as import prices remain elevated due to supply tightness created by the Russia-Ukraine conflict, market sources told S&P Global Commodity Insights March 30.

Indian buyers have been waiting on the sidelines as coal prices from major exporters like Indonesia, South Africa and Australia have been on the rise and way beyond the reach of power utilities in India.

The price of Indonesian 4,200 kcal/kg GAR coal increased to $103.95/mt on March 30, 2022, from $45.80/mt FOB April 1, 2021, according to S&P Global data. During the same period, the price of South African 5,500 kcal/kg NAR rose to $225.05/mt from $71.35/mt FOB, and that of Australian 5,500 kcal/kg NAR coal with 23% ash content increased to $200/mt FOB from $59.30/mt FOB.

Low coal stocks despite higher year-on-year production both at power plants and pitheads of domestic coal mines have raised concerns about a possible power shortage as the summer season draws near.

"Electricity tariffs have already crossed Rupees 11/unit in the spot power markets (the average power cost in the spot power market in FY22 has been Rupees 4.39/unit), and electricity demand is yet to reach its peak level," said Ashok Khurana, director general of the Association of Power Producers.

"So, it will not be right to say that consumers will not buy power beyond a certain price, especially when it is needed desperately to meet domestic, agricultural, commercial and industrial demand."

Stockpiles remain a concern

State-run power distribution companies have been directed to penalize generation utilities that fail to maintain adequate fuel stocks "citing high price of imported coal," according to a notice issued by India's power ministry March 26.

India's state-run Coal India said March 28 its pithead stock is expected to rise above 60 million mt by the start of the next financial year on April 1, 39.39% lower than the corresponding period last year.

Coal stocks at Indian power plants stood at 25.5 million mt March 28, 12.96% lower on the year, according to data from the Central Electricity Authority. The current fuel stock at power plants is sufficient for a little more than nine days, while a year ago the inventory was adequate for 15 days.

"Indian imported coal power plants have no option but to produce electricity as they have been asked by the government," Khurana added.

Emails sent to Tata Power, Adani Power, JSW Energy and Sembcorp Energy India seeking comments on their plans for seaborne procurement remained unanswered at the time of publishing.

India witnessed a power shortage in October 2021, with utility stockpiles dwindling to just four days' worth of coal due to production and supply disruptions in the July-September monsoon period.

Thermal coal imports by power utilities fell 41.73% on the year to 22.73 million mt during April 2021-January 2022. State-run Tamil Nadu Generation and Distribution Corp. floated a tender seeking 480,000 mt thermal coal for May-June delivery while state-run power generator NTPC had invited bids for 1 million mt imported thermal coal supply in October 2021.

Capacity constraints hurt output

Power producers also remained concerned about capacity constraints when it comes to boosting coal production and transportation within the country.

"Coal India's capacity to increase production to meet the rapidly increasing power demand is a challenge. Even if there is coal, the capacity of Indian Railways to transport that coal has become limited because there is a shortage of freight wagons," said Harry Dhaul, director general of the Independent Power Producers Association of India.

Coal India's production increased 5.3% on the year to 542.40 million mt during April 2021-February 2022, while Indian Railways transported 588.87 million mt coal during the same period, up 21.8% year on year.