Posted on 20 Aug 2024
Morning Brief: India's thermal (non-coking) coal imports fell to their six-month lows in July 2024. Volumes were recorded at 14.9 million tonnes (mnt) last month, the lowest seen since the 14.5-mnt level seen in January this year.
On a m-o-m basis too volumes were down 4% against 15.5 mnt in June.
However, volumes over January-July, 2024 amounted to 110 mnt, up 15% against 95.9 mnt in the corresponding period last year (CPLY).
Reasons for the fall in imports in Jul'24
Fall in power demand on arrival of monsoons: Power demand is India, after peaking at 1.56 million units (MU) in May, fell to 1.51 MU in July, a m-o-m dip of 1% from 1.52 MU in June. Demand fell with the advent of the monsoon which led to a drop in temperatures across most parts of the country in comparison to the peak summer levels. As a result, coal-fired generation dipped 7% m-o-m in July to 106 billion units in July against 113 BU in June. With the decline in coal-fired power generation, naturally, imports of thermal coal, decreased last month. Volumes from Indonesia, from where the largest chunk of India's thermal coal is imported, fell 3% m-o-m to 9.1 mnt from 9.4 mnt in June. It may be noted, Indonesian coal is predominantly used in India's power sector.
Pick-up in power generation by large hydro units: With the advent of the monsoon, the large hydro projects were in a position to ramp up their capacities. Thus, large hydro generation increased around 20% to 17 BU last month from 14 BU in June. The share of large hydro generation in India's total power generation in 2023 was at around 8% and in January-July, 2024 at 7%.
Falling steel prices dampen coal demand: The continuous decline in steel prices also impacted India's thermal coal imports significantly. Indian tier-2 steel mills using the electric furnace route of steel-making are heavily dependent on coal as a fuel. However, steel demand has been dull through the year, dragging down prices in the process. Both billet and induction furnace-route rebar prices fell 7% m-o-m in July.
In a knee-jerk reaction, India's sponge iron production fell to 4 mnt in July from 4.27 mnt in June.
CIL eases EMD, auction sales pick up: Another factor behind the fall in imports last month lay in the fact that Coal India (CIL), India's domestic coal supplier, decided to reduce the earnest money deposit (EMD) for its single window mode agnostic e-auction to encourage broader participation. Historically, the EMD was at INR 200/t ($2/t) and had increased to INR 500/t ($6/t). After thorough discussions, the CFDs approved reduction of the EMD from INR 500/t to INR 150/t ($1.80/t). This led to auction sales picking up last month, allowing buyers to eschew imports. CIL's e-auction sales spurted by 69% m-o-m to 6.50 mnt in July against 3.80 mnt in June on the back of larger buyer participation for domestic coal.
Outlook
India's thermal coal imports may pick up September onwards since a steel demand turnaround is expected from October onwards after a prolonged lull. Thus, buyers may opt for restocking, in order to be prepared for the expectedly improved production cycle from the third quarter onwards.
Source:BigMint
