After several months of tepid volume growth, demand for coal is gradually picking up backed by a revival in industrial activities. Though it might still take some more time for the industry to bounce back to pre-Covid levels, production and offtake has been improving on a month-on-month basis.

Coal generation, which was down by nearly 25 per cent in April and by around 15 per cent in May and June, has now improved. It has been consistently rising each month backed by an improvement in utilisation level, industry experts said.

Near term prospects

Moving forward, the demand for coal is likely to grow by around 3-4 per cent in the near term for the next 3-4 years, they add. However, the increased focus on renewables and its growing share in the overall energy mix is likely to exert pressure on coal demand in the medium to long term.

“Coal production and offtake have improved from September onwards, but that is on a low base. Production was impacted last year because of heavy monsoon rains in some of the mine areas and year-on-year basis production in September and October last year was down by around 20 per cent. So the higher production and offtake this year is due to base effect. On a like-to-like basis, coal generation is down by 3-4 per cent but definitely there is improvement from April when the generation was down by 25 per cent,” Rupesh Sankhe, analyst at Elara Capital India Pvt Ltd, told BusinessLine .

Coal India Ltd (CIL) accounts for nearly 83 per cent of the country’s total coal output. The Covid-induced slowdown impeded the company’s output and off-take with production shrinking by 11.6 per cent and offtake by 21 per cent during the first quarter of this fiscal as compared to same period last year. However, following the unlocking, the company’s recovery began in August when it posted 9.3 per cent output growth and 7.1 per cent rise in offtake for the first time during the ongoing fiscal. Both the parameters rose to a high of around 32 per cent in September and the positive trend is being sustained since then, a company spokesperson said.

Demand drivers

The country produces close to 729.10 million tonnes (mt) of coal annually and around 250 mt is imported. Nearly 80 per cent of the total coal produced is utilised by the thermal power sector, while the remaining 20 per cent goes to the non-power sector which includes primarily steel, cement, sponge iron, captive power plants and a host of other industries.

While demand from industrial and commercial segment, which together comprise about 52 per cent of power demand, got impacted during the lockdown, the demand from residential and agricultural segments was firm.

According to Jayanta Roy, Senior Vice-President, ICRA, the steel sector has witnessed “a sharper than expected turnaround” in demand. Though the rate of growth is very small, however, it is higher than last year. The growth momentum is likely to sustain during the next four months of this fiscal, he said.

Price realisation

The improved demand is also likely to shore up price realisation on sale through e-auction route. CIL had brought down the reserve price on coal sold through auction to nearly zero due to poor demand in the first half of this fiscal. In November, however, it earned a premium of 10-12 per cent on its sale through e-auction platform. However, it might be difficult for prices to reach pre-Covid levels anytime soon. The average price realisation pre-Covid was close to ₹2,300 a tonne, this is currently ruling at around ₹1,500-1,600, industry experts said.

According to Subhasri Chaudhuri, Secretary General, Coal Consumers’ Association, bookings on e-auctions have started improving and this would gradually start reflecting in prices.

“Previously, there were hardly any bookings in auction and there were quantity left unsold but things are gearing up. Though you cannot really compare the situation (prices), it is improving,” she said.

Roadmap for future

Coal continues to remain one of the primary energy sources in India. The strong economic growth and resultant demand for energy coupled with schemes such as UDAY which entails large scale rural electrification and power for all would continue to drive the demand for coal.

However, increase in proportion of renewables in the energy mix and issues pertaining to land possession and rehabilitation are likely to pose a major challenge. Moreover, coal-based thermal power generation faces increased environmental pressure – adversely impacting its competitiveness against alternate sources. In the long term, it can impact the coal demand.

Moving forward, the supply side would be directly dependent on the demand. Though the demand is showing signs of improvement it has to stabilise further. Increase in supplies would be linked to growth in demand and its sustenance, the CIL executive added.

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