Falling rupee makes coal from Indonesia dearer; non-power consumers hit hardest

The volatility of the rupee in the last two weeks has come as a double whammy for coal consumers other than the power sector.

Deprived of even the contracted quantities from Coal India — which is struggling to meet the demand from the power sector despite double-digit growth in the fuel production — non-power consumers (like steel, cement etc) are increasingly dependent on imports to meet their demand.

According to Reuters, India’s coal imports are up by nearly 11 per cent to 129 million tonne between January and August.

The import should have grown faster beginning this month. To their good fortune, prices of 4200 kilo calorie Indonesian coal, which is popular in India, declined by 20 per cent since mid June from approximately $49 a tonne to $38.60, due to low Chinese demand for the particular variety.

This was an exception because overall coal prices are on a spiral, up 11 per cent this calendar year.

Theoretically it is a good opportunity to stock up, but not many could afford it, as July-August are the peak monsoon months, when demands remain subdued and moving coal from the ports is a hazard.

But just as they were planning to be back in the market place, the rupee went into a free fall. From August 13, the rupee declined from ₹68.80 a dollar to ₹72.67 a dollar on Monday, down 5.48 per cent. The period also coincided with firming up of sea freight rates.

From the Indonesian mining hub of Kalimantan to the Indian port of Visakhapatnam, the freight is up from $12 to 14.5 a tonne. The net result is, Indian buyers are shying away from buying. “Bidding is not happening,” said Harshvardhan Sethi, Associate Director of SPML, a merchant importer.

Sethi points out that while sea freight may be an issue for importing American coal, buyers of Indonesian coal are primarily hurt by the uncertainty in the currency front.

So will low Indian demand hurt Indonesian suppliers? Sethi doesn’t see such possibility as Indonesia’s domestic demand is consolidating and demand is rising from countries such as Korea and Thailand.

Deepak Kannan, Managing Editor of Asia Thermal Coal at S&P Global Platts, thinks the low price for 4200 Kcal coal may not continue for long. “The expectation is, in October-December quarter will look to restock for winter season. So demand may pick up supporting prices,” he said. This is no good news for non-power coal consumers in India.

CIL had expected to improve the coal stock at power plants in the rainy season. But the plan failed as average coal stock at generation facilities still stands at 10 days. Going forward, CIL will get busier to meet demand for power till the elections in April-May.

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