Economy

Coal prices to remain subdued this fiscal amid weak demand, high inventory

Our Bureau Mumbai | Updated on August 17, 2020

The share of imports in domestic consumption has come down to 22 per cent in June   -  REUTERS

Coal offtake is improving gradually as lockdown eases

Coal prices are expected to remain subdued to weak demand and high inventory levels. While the non-coking coal import prices have shown signs of recovery as the power demand picked up over May 2020, the coking coal import price is yet to catch up because steel sector demand remains subdued.

Non-coking coal import prices in July declined by about 40 per cent from mid-January (pre-Covid levels) and the coking coal import prices have had fallen by about 25 per cent. Considering the nature of the respective end-user industries, the non-coking coal import prices are likely to pick up gradually while coking coal prices may still take a while to recover, said a India Ratings report.

Production and offtake are subdued till July due to employees union strikes at mines against privatisation combined with the onset of the monsoon season. Domestic coal production was down for the third consecutive month in June on the back of a low power demand and high piling inventory at power stations. The offtake is improving slowly with gradual relaxation in lockdown norms.

China bounces back

However, China’s coal production has bounced back to exceed the previous year’s performance, despite the Covid outbreak, it said.

Domestic coal imports are likely to have been lower in July due to the low domestic demand from end-user industries amid the Covid outbreak.

The government has mandated Coal India to replace at least 100 tonnes of avoidable imports with domestic coal in this fiscal, to reduce imports. The share of imports in the total domestic consumption reduced to 22 per cent in June from 28 per cent in FY’20. While the non-coking coal imports reduced 34 per cent, coking coal imports declined 41 per cent.

Faster implementation of commercial coal mining and associated reforms will be key for a more deregulated and competitive scenario.

Some States’ resistance over environmental concerns for some mines on offer is likely to stall the auction of these blocks. Furthermore, a global shift towards green fuels and simultaneous withdrawal from coal-based energy may be a key challenge to participation of industry players.

Published on August 17, 2020

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