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Imported coal prices may sustain at current high levels: India Ratings

NEW DELHI :

Imported coal prices could sustain at the current high levels on the back of a raft of reasons such as strong electricity demand due to strong industrial activity, winter demand, supply concerns in key exporting countries, supply chain constraints and a continued strong steel sector demand; according to India Ratings and Research (Ind-Ra).

“Ind-Ra believes the coal import prices could sustain at the current high levels due to limited downside risks with no sharp corrections likely over the current quarter. The prices shall be supported by a strong power demand, driven by robust industrial activities, winter demand, supply concerns in key exporting countries, supply chain constraints and a continued strong steel sector demand ex-China as against China curtailing steel production over 2H21,” Ind-Ra said in a statement.

This comes against the backdrop of fuel stocks at coal-fuelled power projects building up after depleting to 7.23 million tonnes (mt) on 8 October. India’s power plants burn around 1.85-1.87 mt of coal every day to generate electricity. The government’s plan is to build a total coal fuel stock of 16 mt by end November.

“Domestic coal offtake is likely to increase in Q3FY22, primarily driven by sustained high industrial activities, a higher share of coal-based power generation, critically low coal inventory levels and curtailed imports on sky-high import prices,” the statement added.

The depleted fuel stocks at power plants have led to concerns about a possible electricity shortage. This assumes significance given that coal fuelled power projects totalling 202.22 gigawatt (GW) remain the mainstay of India’s power generation and account for more than half of India’s power generation capacity.

“However, if the covid-19 infections resurge in China or there is a slowdown in Chinese real estate demand along with metal production cuts, the coal consumption may slow down, leading to higher availability of coal and thus, a softening of the prices,” the statement said.

The coal shortage has coincided this year with a sharp spike in electricity demand, growth in number of electricity consumers and inadequate stocking up by power projects before monsoon. Also heavy rains in September impacted coal production and dispatch and non-payments of coal dues also contributed towards inadequate supplies.

“However, an unprecedented increase in the power demand over August and September 2021 on the back of robust industrial activities led to steady drying-up of inventories at power stations. On the other hand, adequate incremental supplies could not be arranged in a short span as the production levels could only sustain until Q2FY22 (0.47% q-o-q and 13.4% y-o-y higher), despite operational challenges during the monsoons,” the statement added.

India’s daily electricity consumption has crossed 4 billion units , resulting in a 18% spike in coal consumption during August-September 2021 compared with the corresponding period in 2019.

“With the monsoon season over, the production volumes are likely to pick up q-o-q in Q3FY22, thus increasing domestic coal supply. Furthermore, multiple efforts by the ministry, including augmenting supplies from captive coal mines, offloading additional inventories, and temporarily diverting coal for non-power sectors to the power sector shall offer some respite amid the prevailing coal crisis. With increased coal availability, the offtake is likely to go up q-o-q as the increased power demand is likely to sustain,” the statement said.

Global energy markets are in a frenzy with a spike in energy prices across fuel sources such as crude oil, gas, and coal. India has the world’s fourth largest reserves and is the second-largest producer of coal. While CIL’s annual production target is 660 mt for the current financial year, the coal offtake is expected to be 740 mt.

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