India Ratings and Research (Ind-Ra) has published the March-April 2021 edition of its credit news digest on India’s coal sector. The report highlights the demand-supply scenario, price trends, imports in both India and China, encompassing non-coking coal and coking coal, while also evaluating at the impact of end-user industries on India’s coal sector. The report also covers the recent updates on commercial coal mining.

Ind-Ra believes the domestic coal production and offtake could face temporary headwinds due to the second wave of COVID-led restrictions and localised lockdowns, as the power demand is likely to be lower month on month (mom) on curtailed industrial activities. Nevertheless, normalised inventory levels at power stations shall support coal offtake and thus production, on the previous year’s low base. 

Improved Domestic Offtake & Production:
Coal offtake spurred up 16.3% mom and 12.4% year on year (yoy) in March 2021 to 65.7MT, driven by a 16.7% mom higher domestic power demand. Accordingly, while domestic coal production improved 28.9% mom in March 2021 to 87.5MT, it was lower 3.1% yoy due to the above-average inventory levels at end-February 2021. Overall, coal production and offtake were only 2.9% and 3.5% lower yoy, respectively, in FY21 despite COVID-19 outbreak, supported by a steady recovery in economic activities over 2HFY21. 

Volatile Thermal Coal Import Prices:
Import prices for Indonesian-origin thermal coal, primarily consumed in the power sector, shot up 36% mom up to end-April 2021 on a strong Chinese demand and stocking requirements ahead of the high-demand summer season. On the other hand, South Africa-origin thermal coal prices, primarily used in sponge iron manufacturing in the steel sector, dipped by 10%-16% mom at end-April 2021 on the back of reduced demand as increased lockdown restrictions have been imposed, especially in India, which accounts for over 50% of its exports. As oxygen is a key input in steel making, its shortage due to the diversion of industrial oxygen for medical uses has reduced demand for sponge iron largely from secondary steel producers while the primary producers continue to operate normally. While Indonesian coal prices could witness some correction as the demand normalises, prices for South Africa coal might remain subdued amid uncertainties in the sponge iron sector in India. 

Subdued Coking Coal Import Prices:
Over FY21, Australia’s share in Chinese coking coal imports stood at 32.7% (FY20: 48.0%) while the absolute quantity reduced 45.7% yoy, higher than the 20.3% yoy overall drop in Chinese coking coal imports. Over December 2020-March 2021, there were no imports from Australia in China, indicating a continued aversion to import from Australia. This is likely to keep the coking coal import prices subdued on the back of an oversupply in the global market amid low ex-China demand due to the resurgence of COVID cases. However, the oversupply could be partially offset by restocking demand prior to the monsoons as prices gradually stabilise at the current levels or reduce further in the ex-China market. 

Domestic Developments:
As per the Mines and Minerals (Development and Regulation) Amendment Act, 2021, approved on 28 March 2021, the distinction between captive and non-captive miners has been removed. The amendment has allowed captive coal miners to sell up to 50% of their production after meeting own requirements. This shall maximise output from captive mines and will lead to increased availability of coal in the domestic market at an additional cost/royalty to be paid by the captive miners on the merchant sales of the coal. 

Source: Coal Controller’s Organization, Ministry of Coal, Steelmint, CMIE, Central Electricity Authority, Infraline, MSTC Limited, Coal India, ACE Equity

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