Steaming ahead

India’s appetite for coal has been robust this year, growing by 3.9% YoY for the first seven months. This week we delve into some interesting trends regarding Indian coal imports.

India’s coal imports have totaled 136.9 MMT during January-July 2022, up 3.9% over the same period last year. At this rate, annual volumes for 2022 have a potential to reach circa 235 MMT, levels last seen in 2019; however, back then, imports totaled 141.1 MMT during January-July. In July, imports stood at 24.1 MMT, lower 10.02% MoM due to easing power demand in the Monsoon season, but up 45.5% YoY.

Thermal coal imports growing

India has witnessed firm economic activity as well as an intense heatwave this year, which has fueled higher electricity demand. Consequently, thermal coal imports have been up 9.5% YoY, totaling 101.3 MMT so far in 2022. India’s coal-fired power generation capacity is the second largest in the world at approx. 204 GW. This equates to a daily coal requirement of 2.8 MMT, according to the Central Electricity Authority (Ministry of Power). Despite the central government’s drive to make India self-sufficient for thermal coal, utilities have looked to import more volumes even with high international prices, as domestic production has struggled to keep pace with growing demand. Lack of supplies was among the key reasons for acute power cuts in April-May during the peak of the heatwave. Moreover, almost all coal-fired power plants have lower than required stock levels. This has pushed the central government to direct Coal India (state-owned coal miner) to import 12 MMT of coal during July 2022-July 2023. This would be the first coal imports by Coal India since 2015. As of 2nd August, total coal stock at all power plants stood at 30.2 MMT or 10.9 days’ worth of consumption, compared to a stipulated requirement of three weeks’ worth. This is up sharply from a few months ago. Total coal stocks were 22.0 MMT as of 1st May.

Coking coal shipments facing headwinds

In contrast to thermal coal, India’s coking coal shipments have been on a decline this year despite the government’s initiative to cut the 2.5% import duty to zero in May. The country’s domestic coking coal production has increased this year, keeping a lid on import volumes. According to provisional data from the Ministry of Coal, coking coal production stood at 28.4 MMT in 1H 2022, compared to 21.3 MMT during the same period last year. On a monthly basis, this equates to 4.7 MMT in 2022, compared to 3.4 MMT/month in 2021. Imports were down to 3.9 MMT in July, lower 61.7% MoM, and the lowest monthly total since July 2020. Overall, shipments have totaled 35.6 MMT for the first seven months of the year, down 9.2% YoY.  Demand for this grade of coal has been strong with healthy domestic steel production, supported by infrastructure and construction sectors. According to Worldsteel, India’s crude steel production stood at 63.2 MMT in 1H 2022, up 8.8% YoY.

Indonesian and Russian volumes grow

Indonesia has recaptured its top spot in the Indian coal market, accounting for 48% of imports in 2022 YTD compared to 35% last year. Shipments have totaled 65.4 MMT during January-July 2022, up 38.8% YoY. Volumes have grown steadily since February, after Indonesia’s ban on coal exports in early January, which was redacted later in the month. Russian coal shipments to India, albeit a meagre 5.5% share of total volumes, have grown sharply by 73.6% YoY to total 7.5 MMT. While several buyers have shunned Russian commodities due to the war and strict sanctions, India has looked to take advantage of lower Russian coal prices and has imported more volumes. This trend can be expected to continue in coming months, considering EU’s ban on Russian coal coming into effect from 10th August. Meanwhile, Australia’s share of the pie has shrunk this year as exporters have struggled to maintain volumes due to heavy rains and floods in key mining regions of New South Wales and Queensland. Australian volumes to India have declined by 29.4% YoY to 33.5 MMT in 2022 YTD. This amounts to 24% of total Indian imports. Interestingly, last year Australia held the largest market share in India at 36% as exporters were looking to diversify once China imposed an unofficial ban on Australian coal in late 2020. Lastly, Indian coal imports from South Africa (10% share) and the USA (6% share) have also declined this year, by 17.8% and 20.3% YoY, respectively.

Capes gain

India’s growing appetite for coal has greatly benefitted the Cape segment in 2021 and 2022. For both these years, imports on Capes have been at about 47% of total, compared to 35% in 2019 and 33% in 2020. Indonesia, Australia, and South Africa have been the largest source of Cape shipments during January-July 2022, amounting to 30.4, 13.2, and 9.9 MMT, respectively. Combined, this was 83% of total imports on Capes. Panamax (incl. Kamsarmax) has been the next preferred segment with 36% volumes shipped on this size so far this year. Shipments on Supramaxes were 15.4% of total, whereas Handysizes had a small contribution of 0.4%. With the rainy season bringing a much-needed respite from the intense heatwave and predictions for lower than previously expected economic growth, India’s coal requirement is likely to ease in the coming months. In its latest WEO report, the IMF forecasts India’s GDP to grow by 7.4% in 2022, down from its forecasts of 9.0% in January and 8.2% in April. Though Indian buyers may face intense competition to secure cargoes from major coal exporters, particularly Indonesia and Australia, as many countries are progressively moving away from Russian coal, they may get lucky in securing more Russian volumes at a steep discount.