Posted on 17 Sep 2024
*Imported coal volumes in August assessed at 13.5 mnt
*Coal-fired power generation drops 6% m-o-m
*Pre-festive rebound expected in September as monsoon recedes
Morning Brief: India's imports of thermal coal - or non-coking coal used primarily for power generation but also extensively in the domestic industrial sectors - fell to the lowest level in one year in August 2024, as per BigMint data.
Thermal coal imports were assessed at around 13.5 million tonnes (mnt) in August, down 9% m-o-m. It deserves mention, however, that imported volumes were lower in the same month of last year.
Notably, imports had decreased to a six-month low in July, with volumes recorded at 14.9 mnt, the lowest seen since January this year. The continued downturn in imports points to subdued demand during the monsoon months.
India's coal import sources remained largely the same in August: Indonesia was the top exporter to India at over 8 mnt followed by South Africa at just around 1.8 mnt. This reflects the general weakness of the domestic sponge iron sector, the major consumer of South African non-coking coal. South African coal shipments dropped over 45% m-o-m reflecting general weakness in the domestic steel sector. The US, Russia and Australia were the other major shippers.
Why imports declined?
*Drop in coal-fired generation: Coal-fired power generation edged down by 6% m-o-m in August due to a protracted monsoon ravaging many parts of the country, which played a major role in keeping thermal coal demand subdued compared with the peak summer months. BigMint data shows that coal-based power generation in August fell to 98.93 billion units from 105.9 billion units in July. The decline in thermal power consumption was the key reason behind the drop in imports.
*Surge in power generation by large hydro: In the monsoon season, the large hydro projects were in a position to ramp up their capacities. Thus, large hydro generation increased around 22% to over 21 BU from 17.56 BU in July. 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 domestic steel prices also impacted thermal coal imports. India's sponge iron sector, the main importer of coal, was under pressure due to weak steel market sentiments, which kept imports on a tight leash.
*CIL eases EMD, auction sales edge up: Another factor behind the fall in imports is the fact that Coal India (CIL) 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 has led to auction sales picking up, allowing buyers to eschew imports.
Outlook
India's thermal coal imports may pick up in September, with the monsoon receding in most parts of the country, although that is also likely to augment domestic supplies. A demand turnaround ahead of the festive season is also expected to boost imports as buyers may opt for restocking in order to be prepared for the improved production cycle from the third quarter onwards.
Source:Mysteel Global
