Prospects bleak for recovery in coal pricesMumbai April 11
For nearly nine months now, the global coal market has been languishing with weak demand, limited supply-side response and prices staying above most producers’ operating costs.
Stocks rising
As demand stays weak and supplies are not cut adequately, there is evidence of market imbalance with worldwide stocks rising. For instance, Chinese coal inventory is still large, with generators holdings higher than last year’s average. No wonder, coal prices have not improved in the first quarter of the new year although several industrial commodities – crude, copper to name a few – have put up better price performance. Indeed, the supply response to prices in coal has not been as rapid and large as say in crude or some base metals.
Surplus in thermal coal is becoming increasingly apparent. This is evidenced by annual contracts being priced considerably lower (nearly half) than that of last year.
In addition to weak end-use demand, alternative supplies from other surplus markets such as of gas are also weighing on the coal market.
For these reasons, experts believe, there is no immediate prospect of a recovery in coal prices.
According to Barclays Capital, India provides the only hope for robust demand growth this year, though not because of strong industry activity. In fact, industrial production in the country has been falling and is expected remain modest for some months.
Power generation slows
Growth in power generation has also slowed. However, despite the softening of demand, India is facing a power deficit of approximately 11 per cent and 37 critical power stations had coal stocks of less than 7 days at the end of January. The need to plug the existing deficit suggests that India’s coal demand should grow faster than expected, Barclays Capital argued, cautioning that nevertheless, it is unlikely to be strong enough to fully offset weak demand elsewhere.
The Government has of course denied reports of acute shortage of coal.
Shortfall
It has, however, admitted that as per Plan projections, the country may face a shortfall of 52.7 million tonnes (mt) of coal comprising 25.0 mt of coking coal and 27.7 mt of non-coking coal.
Data point to rising coal imports into the country.
From 38.6 mt in 2005-06, total coal imports increased to 45.0 ml.t. the following year and then on 49.8 ml.t. in 2007-08.
Imports hit 25 m t
In the first six months of last fiscal, coal imports had already crossed 25 mt. It is estimated that aggregate imports for the whole year would well be close to 55 mt.
Why should India import coal? By and large demand for coal including from power utilities was met from indigenous sources.
However, some consumers including power sector are importing due to limited indigenous availability of coking coal and low-ash non-coking coal.
Environment considerations, locations specific landed costs, increase in plant load factor and building up of stocks by power utilities have also contributed to rising imports. Experts assert that coal prices are unlikely to firm up in a hurry.
Wild card
Prices have been ranging between $50 and $60 a tonne free-on-board. China could of course be a wild card. Once demand revives, coal prices will face a strong upside risk. This itself may encourage some countries to import in order to build inventory of low priced coal.
https://www.thehindubusinessline.com/2009/04/12/stories/2009041250110600.htm