As imported coal prices fall, power sector brightens up

At a time when a falling rupee is making imports costlier, there is some good news for the coal-based energy sector. India meets nearly one-fifth of its total demand for coal, used in electricity generation, through imports.

While a fall in prices of high quality South African thermal coal has already negated the impact of the depreciating rupee on the captive energy needs of the sponge iron and cement sectors, the market is abuzz about the prospect of a fall in the price of low-quality Indonesian coal used in electricity generation in India.

If that’s not all, in a trend reversal, the slowdown-hit China is now looking at ways to export coal to India. The trading lobby suggests that China’s domestic coal prices are falling. With slower demand from China and the flooding of European market with American coal, South African coal prices have come down $5 to $80 a tonne (for 6,000 kilo calorie per kg, net as received) at Richard Bay, in the last two months.

During the past two weeks, coinciding with the rupee’s fall, coal prices dipped by nearly $3 a tonne.

“The fall in prices have neutralised impact of devaluation of rupee,” a Delhi-based coal trader told Business Line . He expects coal prices to ease by another $2 a tonne in the next couple of weeks, due to weak demand outlook.

Indonesian coal

But Indonesian coal prices remained firm in the last couple of weeks. Indonesia is the single largest source of thermal coal for both India and China.

But the market is anticipating a free fall in prices of Indonesian varieties, particularly those below 4,000 kilo calorie (gross as received) heat value due to an anticipated ban on the use of low quality thermal coal in China.

With nearly four-fifths of its electricity generation fuelled by coal, China is high on pollution index. As a corrective measure, Beijing is thinking of clamping down on the use of low-quality coal for power generation.

“If China imposes the ban, prices of coal below 4,000 kcal will fall,” said Siddharth Kasera, Vice-President of Concord Fortune, a mineral trading company. He expects the ban to be imposed this month. In keeping with the quality of the country’s mining reserves, Indian power utilities are used to coal below 4,000 kcal.

China eager to export

Overall, the supply situation may ease further if Chinese coal also starts arriving in India. According to Joyeeta Mazumder, Director-General of the Indo-China Promotion Council, several Chinese miners are now trying to locate buyers in India.

According to a Kolkata-based trader, the shipping cost between the India’s east coast and Chinese ports is more or less the same as that of Indonesia.

pratim.bose@thehindu.co.in

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