India coal imports surge in July, despite advancing prices

30th july 2018

India’s coal imports appear to have surged in July and may even come close to a monthly record as it grapples with domestic transport woes and rising demand for electricity.

Coal imports are on track to reach 19.7 million tonnes in July, according to vessel-tracking and port data compiled by Thomson Reuters Supply Chain and Commodity Forecasts.

The data was filtered to include only cargoes that have already unloaded, are awaiting or currently discharging, or are expected to arrive before the end of the month.

The final figure for July may be adjusted, but it’s likely that the month will be near the previous record of 19.85 million tonnes, from July 2015, or top the second-best figure of 19.65 million from June 2016.

The rising imports come even as coal prices surge on the back of strong demand from China, the world’s biggest importer, and other Asian countries including Japan.

Imports for the first seven months of the year are likely to be around 115.1 million tonnes, up 9 percent from the same period a year earlier, according to the vessel-tracking data.

India is likely to be a reluctant buyer of imported coal, given the country tends to cut back on overseas purchases in times of high prices.

Prices for thermal coal used in power generation have scaled multi-year peaks so far in 2018, with the Australian benchmark weekly Newcastle Index hitting $122.57 in the week to July 22, the highest since September 2011 and up 18 percent since the end of last year.

However, Australia isn’t a major supplier of thermal coal to India, with the bulk of its exports to the South Asian nation being coking coal.

India’s main supplier of thermal coal is Indonesia, where prices have also been rising, but perhaps not quite so dramatically as for the higher-quality Australian grades.

Indonesian coal with a calorific value of 4,200 kilocalories per kilogram, as assessed by Argus Media, ended at $47.48 per tonne in the week to July 20, having dropped for the past four weeks to be up only 1.4 percent since the end of last year.

It’s also down from its peak so far in 2018 of $51.04 a tonne, hit in late February, although it is also well above the trough of $41.08 from the week to Apr. 13.

Indonesia not benefiting?

What the prices show is that lower-rank Indonesian coal has underperformed higher-quality Australian coal, meaning that it should be enjoying a relative advantage in a price-sensitive buyer such as India.

But the vessel-tracking data isn’t showing this, with imports from Indonesia weakening in June and July.

July’s total is likely to be around 6.7 million tonnes, down from June’s 7 million and 7.3 million in May, which was the best month since December last year.

In contrast, coal shipments from Australia to India have been moving sharply higher, with 5.1 million tonnes likely to have arrived in July – the strongest month since shipping data started in 2015.

Of course, the bulk of this will still be coking coal used to make steel, but looking at the breakdown of the vessels and it appears at least some cargoes were thermal coal.

The other winner is India’s third-largest supplier, South Africa, with imports rising to around 4 million tonnes in July, also a record.

South Africa’s exports are thermal coal and are of a higher calorific value than the bulk of shipments from Indonesia.

This shows that Indian utilities are prepared to pay more for higher-quality coal, which may be a sign that they are seeking to maximise the efficiency of their boilers, or are concerned about minimising the amount of pollution per unit of electricity generated.

It also seems likely that coal imports may remain elevated for at least the coming months, given the difficulties being experienced by state-controlled producer Coal India in securing rail transportation.

However, as the import bill surges, it’s also likely that political heat will be turned up on Coal India, given it’s the policy of Prime Minister Narendra Modi’s government to produce enough coal domestically to cut imports to zero.

Source: REUTERS