India cedes its position as top coal importer to China, but for how long?
India imports twice as much coal as it did five years ago, but last year China overtook it as top importer. The question is whether that was just a blip
Launceston, Australia — China has taken over from India as the top importer of coal as India’s overseas purchases fell in 2016 to fewer than 200-million tonnes.
The question now is whether lower Indian coal imports is the new reality, or if last year was just a blip.
India’s coal imports last year totalled 194.93-million tonnes, according to vessel-tracking and port data compiled by Thomson Reuters Supply Chain and Commodity Forecasts.
This was 5.4% lower than the 206.6-million tonnes in 2015 and also less than the 255.5-million tonnes China imported last year, according to official customs data.
Despite the decline, India still imports nearly four times as much as it did a decade ago, and almost double the quantity of five years ago.
India’s rapid growth in coal imports came amid strong economic growth and struggles by state miner Coal India to lift output to meet its ambitious targets.
India’s coal production has been rising, although Coal India may battle to reach a target of 575-million tonnes for the year to March. April-December output was 378-million tonnes; if that pace was kept up in the final financial quarter annual production would be closer to 504-million tonnes.
Indian Coal Secretary Susheel Kumar said on January 6 that Coal India output was expected to rise to 660-million tonnes in 2017-18 and to 1-billion tonnes by 2020. Those targets look optimistic, but even if Coal India doesn’t hit them, the world’s biggest coal miner is still likely to keep raising production by millions of tonnes a year.
This puts a question mark over the continuing viability of coal imports into India, given that Coal India is a low-cost producer that has the backing of a government that aims to eliminate coal imports.
For India’s coal imports to reverse last year’s slide, two conditions probably have to be met.
The first is that India’s coal demand would have to rise faster than Coal India’s output. This is possible, but it is not a base case scenario.
India is already starting to pull back from building more coal-fired power plants, and increasing pollution in the capital New Delhi is likely to see further pressure on the government to tackle the problem.
India’s preconstruction pipeline of coal-fired power generation dropped by 40GW last year, according to a Global Coal Plant Tracker run by nongovernment and anticoal group CoalSwarm.
Only China, battling pollution, cancelled more coal power projects, with 114GW scrapped, CoalSwarm said.
Still, the International Energy Agency said in a December 12 report that it expected India’s coal demand to rise by an annual average 5% by 2021.
If this is case, and Coal India comes close to its output targets, India will probably not need to import much coal for power generation, although given the paucity of local reserves it will still have to buy coking coal overseas to make steel.
Carmichael mine black swan
The second condition for India to reverse its slide in coal imports is that global coal prices would have to remain cheap so incoming shipments could compete with Coal India production.
It’s perhaps no surprise that India’s coal imports fell for the first year in six in 2016, just as global coal price benchmarks had their first increase for five years.
Benchmark Australian thermal coal prices at Newcastle Port rose 87% last year to $94.44 a tonne, although they had fell to $84.17 by the end of last week.
India buys most of its coal imports from Indonesia, taking mainly low-rank grades that can be blended with higher-quality coal prior to burning.
Indonesian coal prices also rose last year, with low-rank 4,200 kilocalorie/kilogram fuel jumping 70% to end 2016 at $53.46/tonne.
These sorts of price increases will cut the appeal of imported coal, meaning cargoes from top suppliers Indonesia, Australia and SA will have to compete on convenience and flexibility of delivery.
Overall, it seems that the case for India importing coal is weakening, both on a demand and price basis.
But, and it’s a big but, the outlook for imports may change dramatically if Adani Enterprises goes ahead with the construction of its $16bn Carmichael mine in Australia’s Queensland state.
Adani remains publicly committed to the controversial project, saying on December 6 it planned to start construction about mid-year on the mine, which is slated to produce up to 60-million tonnes a year.
As Adani plans to ship the mine’s output to Indian power plants, it says the project is not exposed to global coal prices and has a guaranteed customer.
The Adani mine, bitterly opposed by environmentalists in Australia, is the black swan for India’s coal imports. With the mine, imports can increase; without it, they are likely to continue to decline in time.