Kolkata | September 19, 2016: It has been a bad year for Coal India as fuel sales remained flat in the April-August period, sending profits on a tailspin. To survive the slowdown, the miner is looking to substitute imports in the power sector.
Behind the project is the rising price of imported coal since February, widening the price gap with domestic coal.
According to the “India Coal Market Watch” of mjunction, popular import varieties from South Africa (5,500 kcal) and Indonesia (4,200 kcal) have become costlier by 5.5 per cent and 19 per cent respectively over the past 45 days. Import of thermal coal is down 12 per cent this fiscal.
Imported coal is used in power generation for two purposes. While the plants in the hinterland use limited quantities of these for blending, to meet emission standards; coastal power plants (away from the mining zone) run on low quality imported fuel for its freight advantage.
Hinterland imports
CIL is now planning to replace both the demands, partly or fully. While it is now flush with low-calorific value coal, the limited quantities of high value coal available in Ranigunj in West Bengal and Korea Rewa in Chattisgarh — which did not find too many takers in the past — can be used for blending.
To make it workable CIL will make Railways and port authorities party to the negotiation so that coal can be reached to these consumers at a lower price than the imported coal.
Considering India’s inefficient transportation infrastructure that (along with taxes) makes landed cost of fuel nearly two times costlier than the price of coal, the practical aspects of this proposal are yet to be tested.
But to some extent, it has already started happening — NTPC and Neyveli Lignite have stopped issuing fresh import orders. This will replace nearly 17-18 million tonne of import demand beginning the second half of FY17.
NDA-ruled hinterland States such as Chattishgarh, Punjab, Haryana and Madhya Pradesh have stopped issuing fresh import orders, too. Last year hinterland States consumed 37 million tonnes of imported fuel.
Many lose ends
The greater puzzle of servicing the coastal power plants, which are mostly idle due to low demand, is yet to be solved. A CIL source said these plants used 45 million tonnes of fuel last year, which is enough to generate over 9,000 MW of electricity.
How does coal produced in say Odisha or Madhya Pradesh travel 2,000 km to say Tata Power’s ultra-mega power plant at Mundra, by India’s inefficient trains, and still remain cheaper than Indonesian coal delivered at the doorstep by cape-size vessels?
Even if the logistics puzzle is worked out, the plan might face serious hurdles from the pricing point.
According to Deepak Kannan, Managing Editor, Asia Thermal Coal of Platts, the traction behind the current price rise is weak and is almost solely driven by the Chinese demand for imported coal over domestic fuel.
In an effort to cut the domestic production, arguably to offer traction to plummeting prices, China had cut the working days of mines from 330 to 270 for this year. This has pushed domestic prices above imported coal prices.
Also, in Indonesia, production suffered early in the year due to unseasonal rains. But, according to Kannan, as we look at the production outlook of the top 10 Indonesian miners contributing up to 80 per cent of the country’s production, no supply constraint is in the horizon.
More importantly, Chinese regulator NDRC held a meeting last week. And, the rumour is that Beijing may relax the production cap. If that happens, coal prices should melt down in the fourth quarter.
Kannan is not sure if the prices will remain firm next year. And, that’s not music to the ears of CIL. Any meltdown in coal prices may spoil its plan to tap import demands as coastal plants especially will have little logic in replacing imported coal with domestic varieties.
(Source: http://www.thehindubusinessline.com/)