Coal crisis may intensify, non-power consumers likely to be worst hit

With rising concern on the use of petroleum coke and restrictions on its usage in certain parts of the country, the coal crisis may intensify in the next few months, according to trading sources. Non-power consumers may bear the maximum brunt as they are dependent on imports.

The country is reeling under acute coal crisis in the last four months, triggering peak-shortages and volatility in spot market tariff of electricity. This is despite despatches from Coal India going up significantly.

From April to early this week, CIL despatches moved up by a staggering 8.3 per cent, with over 90 per cent of supplies directed to gencos as against 85 per cent last year.

In November, 240 rakes are loaded a day with 215 rakes moving to generation utilities. This is against 210 rakes same time last year. Initially, the miner was lagging in production and was managing the show by diluting old stocks. But from November, the daily off-take and production have improved.

There is no significant spurt in electricity demand either as total grid-based generation increased by 4.41 per cent till October, which is similar to last year. The trouble, if any, is due to an unexpected drop in supplies from hydro and nuclear sources.

As of October, domestic hydel power production was down 4.6 per cent. Import from Bhutan was down 8.85 per cent and nuclear generation was down 8.83 per cent. Considering India has a minuscule 6.7GW nuclear capacity against a total of 331GW, the real difference is made by hydel.

However, hydro electricity generation varies depending on the monsoon. The Indian government hurriedly forced State-owned gencos to cut imports and increase dependency on domestic coal, beginning the end of the last year. This resulted in thermal coal imports going down by 11 million tonnes during April-October, according to mjunction.

Significantly, the import cut came on the back of closure of 25 operational mines from March 31, 2015, due to de-allocation and subsequent auction of coal assets. Non-power consumers like steel and cement were increasingly dependent on captive sources (and imports) since the middle of the last decade.

The impact of the closure of captive sources was not immediately visible as steel and cement sectors were reeling under demand slowdown and over capacity all through 2016. They are now the worst hit as demand is picking up.

As on date, Coal India’s rail despatches to non-power consumers are 30 per cent lower than last year, at 24-25 rakes a day. Steel industry sources claim that combining road, actual supplies are even less. There are also complaints galore about quality of fuel supplied.

According to Siddharth Kasera, India head of SIMEC, a multinational commodity group, the crisis might intensify in the next few months as non-power users are turning to imports. The demand for imported coal will further intensify due to restrictions on petroleum coke usage.

Imported fuel prices normally remain high due to winter stocking and seasonal supply constraints in Indonesia in January-February.

“I foresee at least 10 mt rise in coal imports in India in the next season,” Kasera said. He thinks the spurt in demand would lend support to prices.

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