China top coal importer as India growth trend stalls: Russell

By Clyde Russell

LAUNCESTON, Australia, Jan 30 (Reuters) – India has surrendered its status as the world’s top importer of coal back to China, with its overseas purchases in 2016 falling to less 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.

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This was 5.4 per cent lower than the 206.6 million tonnes recorded for 2015, and also less than the 255.5 million tonnes imported by China last year, according to official customs data.

It should be noted that despite the decline, India is still importing nearly four times as much as it did a decade ago, and almost double the amount from five years back.

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 2016/17 fiscal year that ends on March 31. Output for the April to December period was 378 million tonnes, a rate that if maintained for the final three months of the financial year would see production closer to 504 million tonnes.

Nonetheless, India’s Coal Secretary Susheel Kumar said on Jan. 6 that the miner is expected to raise its output to 660 million tonnes in the 2017/18 fiscal year, and to 1 billion tonnes by 2020.

Those targets tend towards the 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 alone 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 with the elimination of coal imports as a stated policy goal.

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For India’s coal imports to reverse last year’s slide, it is likely that two conditions 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’s 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 pre-construction pipeline of coal-fired power generation dropped by 40 gigawatts (GW) last year, according to a Global Coal Plant Tracker run by non-government and anti-coal group CoalSwarm.

Only China – battling its own pollution issues – cancelled more coal power projects, with 114 GW scrapped, CoalSwarm said.

Still, the International Energy Agency said in a Dec. 12 report that it expects India’s coal demand to rise by an annual average 5 per cent by 2021.

If this is case, and Coal India comes close to its output targets, it’s likely India won’t 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 per cent last year to $94.44 a tonne, although they had dropped to $84.17 by the end of last week.

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India buys the bulk of its coal imports from Indonesia, taking mostly low-rank grades that can be blended with higher-quality coal prior to burning.

Indonesian coal prices also increased last year, with low-rank 4,200 kilocalorie per kilogram fuel jumping 70 per cent to end 2016 at $53.46 a tonne.

These sorts of price increases will cut the appeal of imported coal, meaning cargoes from top suppliers Indonesia, Australia and South Africa 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 $16 billion Carmichael mine in Australia’s Queensland state.

Adani remains publicly committed to the controversial project, saying on Dec. 6 that it planned to start construction around the middle of this year on the mine, which is slated to produce as much as 60 million tonnes per annum.

Adani plans to ship the mine’s output to India to burn in its own power plants, arguing that the project therefore isn’t 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, the imports can increase, without it, they are likely to continue to decline over time.

(Editing by Tom Hogue)