Agri Business

Thermal coal prices soften on slowing Indian imports

| | Updated on: Nov 23, 2011
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Thermal coal suppliers around the world are closely monitoring the Indian coal stocks and power tariff situation for early signs of recovery in imports; but experts believe thermal coal import into India would be slow to recover unless input cost increases are neutralised by hikes in power tariffs.

Currently, many power utilities are said to be losing money. It is common knowledge that slowing global economic growth and fears of demand compression have sent the commodity markets into a tailspin. The fossil fuel or energy market is no exception. In recent weeks, the coal market has faced a slowdown due to weak demand worldwide for seaborne thermal coal.

“The South African coal benchmark price, API4, has recently been trading below $110 a tonne after spending most of the year closer to $120/tonne due to weak global demand for seaborne thermal coal,” Barclays Capital pointed out in a recent report.

On November 17, API4 traded at $107.3/tonne on ICE, down from $111.5/tonne a month earlier. Stocks levels in the country have fallen to alarmingly low levels. This follows a slowdown in domestic production during August-October period because of wet weather, flooding of coal stocks and industrial action. A combination of lower production and slowing imports has resulted in coal shortage which in turn is seen affecting power production. . There has been expectation that the dangerously low level of utility coal stocks in India would force large-scale imports and provide some support to weakening international prices. However, Indian utilities have not accelerated their pace of buying despite falling inventory and worsening power shortage. Ironically, however, as much as 10 million tonnes of imported material are said to be lying in ports. It is believed that power producers are reluctant to burn the expensive seaborne coal to resolve power shortages. While they are negotiating a revision in power tariffs, regulated power prices have not kept pace with high level of coal prices this year, assert experts.

Belief is now gaining ground that unless State Governments concede a decent increase in power tariffs, power generation would take a hit and power shortages could worsen. Of course, the process of revising power tariffs upwards has already begun in some States; but there is a long way to go before it is done in a majority of States. It is, therefore, reasonable to assume that thermal power generation is unlikely to accelerate anytime soon.

According to Barclays Capital, in theory, recent hike in power tariff in some States should provide some incentive to re-open the window for imported coal in India, but there is still some way to go for these tariffs to rise before the utilities breakeven.

Published on November 23, 2011

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