In this list
Coal | Electric Power

For coal-starved India, a free-trade deal with Australia is a blessing in disguise

Energy | Electric Power

Platts Forward Curves – Gas and Power

Petrochemicals | Polymers

Buyers’ choice: Global oversupply of single-use plastics makes recycling uneconomical

Oil | Energy Transition | Energy

APPEC 2024

Energy | Natural Gas | Oil | Crude Oil

INTERVIEW: Ukrnafta to boost hydrocarbons output as Ukraine targets energy independence

Energy | Coal

FOB Newcastle 5,500 NAR Coal

Agriculture | Energy | Coal | Energy Transition | Renewables | Natural Gas

Commodity Tracker: 4 charts to watch this week

For full access to real-time updates, breaking news, analysis, pricing and data visualization subscribe today.

Subscribe Now

For coal-starved India, a free-trade deal with Australia is a blessing in disguise

  • Featuring
  • Suyash Pande    Rituparna Nath
  • Commodity
  • Coal Electric Power

The timing could not have been better: Indian coal importers have been scouring for cargoes in a tight and expensive global market, and along comes an opportunity to access precious supply.

Is the free trade deal between New Delhi and Canberra the answer to Indian coal buyers' supply woes and the country's widespread power crisis?

The comprehensive free trade agreement – signed by India and Australia on April 2 – will remove the 2.5% import duty on Australian coal, which is likely to make such cargoes relatively more attractive against supplies from other leading exporters, such as South Africa.

The trade pact has yet to take effect and is awaiting the Australian parliament's approval. If approved, it could provide an opportunity for India to boost its coal imports, which fell 46.8% year on year to 3.08 million mt in the January-March period, data by trading firm I-Energy Natural Resources showed.

"The preference for South African coal was during normal times but now European demand for South African coal has pushed up its price to such an extent that the preference would be now towards Australian coal," an Indonesia-based trader said.

Following Russia's invasion of Ukraine Feb. 24, the European Commission decided to ban coal imports from Russia. The move led to a surge in European demand for South African coal as they scrambled to replace Russian volumes.

The price of South African 5,500 kcal/kg NAR coal have already climbed 13.43% from Feb. 24 to $263.05/mt FOB April 25, according to data from S&P Global Commodity Insights.

Dwindling domestic inventories

The Indian government has been ringing warning bells on the country's coal supply crisis, to encourage imports and avert a blackout.

According to data from the Central Electricity Authority, Indian utility stockpiles stood at 21.78 million mt April 24, sufficient for a little less than eight days of coal burn. The country had witnessed a similar coal stockpile crisis in October 2021, when utility stockpiles were sufficient for only four days.

Bullish prices amid global supply tightness have held back importers from booking plentiful cargoes for imports, while relying on existing stocks and supplies from state-run Coal India Ltd.

While supplies from Coal India improved in the first half of April by about 14.70% on the year to 1.64 million mt, the company remains wary of the surge in the power demand driven by post-pandemic economic revival and hotter-than-normal summer.

Favorable pricing for end-users

Coal from South Africa is widely preferred by Indian power companies due to its lower ash content while Australian material is majorly used by the cement sector.

Prices of 5500 NAR coal

The price of Australian 5,500 kcal/kg NAR coal with 23% ash content averaged $138.11/mt FOB between January and February, according to data from S&P Global. Meanwhile the price of South African 5,500 kcal/kg NAR averaged $159.66/mt FOB during the same period.

"It's only when there is arbitrage opportunity that Australian coal comes to India. Although this exemption of 2.5% import duty will make it slightly cheaper and might entice buyers when the price gap with South African coal is not big," the Indonesia-based trader added.

Traders noted that if the price differential between FOB price for Newcastle 5,500 kcal/kg NAR and Richards Bay 5,500 kcal/kg NAR was around $10-$15/mt, the exemption in import duty would make Australian coal more attractive to Indian buyers.

Shifting trade flows

Australia has been finding new homes for its coal after China unofficially banned imported Australian coal in 2020.

Indian imports from Australia surged in 2021 but declined earlier this year due to high prices amid the Indonesian export ban that was in place in January.

The exemption of import duty means Australian coal would likely become cheaper for buyers in India.

However, supply constraints from Newcastle might be a concern. Indian buyers will have to compete with those from Japan, South Korea and Taiwan, who have been bidding aggressively for the material.

In 2021, Australian thermal coal supplies accounted for 65% of Taiwan's coal imports, 74% of Japan's and 80% of South Korea's. S&P Global expects that figure to rise for Japan to even higher levels as it has announced a similar ban on Russia coal imports.

Even though the trade pact gives an advantage to Australian coal in the Indian market, it remains to be seen whether the Indian buyers find it enticing enough given the elevated prices.

With reporting and analysis from Pritish Raj and Sambit Mohanty