CovEr STory - Mjunction

coal market fundamentals
Thermal coal import prices subdued in March
The Indian thermal coal market remained subdued
despite some enquiries that took place in March,
according to market participants. Both consumers and
traders are not bullish or ready to take a position in this market
mainly because of financial problems.
The power prices remained low, while coal prices were
high, with the local currency, the Rupee, hovering around 50-
51 to the US dollar, acting as a deterrent to imports.
Australian thermal coal of heating value of 6,300 kcal GAR
is currently being offered at around $106 per ton against $114
per ton quoted at the beginning of March. Offers of South
African thermal coal of heating value of 6,000 kcal NAR fell by
$2 per ton to $103 per ton in March from February end levels.
Offers for Indonesian coal of heating value of 5,900 kcal GAR
is hovering around $92 per ton, while that of heating value of
5,000 kcal GAR is at $72 per ton.
Traders said deals are done only if the coal is required on
an urgent basis. No one is buying to stock the coal, and small
power projects are also buying low grade coal with high ash.
Another reason for the lack of buying interest is that players
Thermol coal price trend in March 2012
Date
South
African
Coal (6000
Kcal NAR)
Australian
Thermal
coal (6300
GAR)
Indonesian
(5900 Kcal
GAR)
Indonesian
(5000 Kcal/
GAR)
Freight
from SA
to West
Coast
From
Indonesian
to West
Coast
Coal Insights Bureau
From
SA to
East
Coast
From
Indonesia
to East
Coast
2-Mar 103.5 113.1 95 73.4 18.7 10.7 20.9 10.2
5-Mar 103.75 111 94.75 73 19.3 10.6 21.8 10.2
6-Mar 103.5 109 94.25 73 19.3 10.6 21.8 10.2
12-Mar 103.25 105 92.8 72.2 19.5 10.75 22 10.2
15-Mar 103 105.8 91.75 71.8 19.5 10.75 22 10.2
are busy closing their financial year which ends on March 31
and preparing their budget allocation for 2012-13.
Indian buyers are quoting prices way below market rates,
citing bids of around $100 per ton fob, for prompt Richards
Bay cargoes against offers of around $105 per ton.
However, according to analysts, thermal coal prices will
remain at relatively high levels over the long term despite
aggressive mine expansions to meet the growth in Asian
demand, particularly from China and India.
Analysts at a recent coal conference felt although there will
be “aggressive” thermal coal supply expansions, steam coal
prices in the long term will defy expectations of a drop and
will instead remain at high levels.
There may be short-term seasonal fluctuations such as the
drop in prices in the current quarter, but the Newcastle reference
coal price for Australian coal will increase progressively,
analysts said. Cost pressures, infrastructure bottlenecks and a
decrease in export coal quality will combine to hold prices at
traditionally high levels and China and India will be the top
two demand drivers. India’s seaborne steam coal demand by
2030 will be 400 million tons (mt) per year from 80 mt in
Critical coal crisis in 18 power units
Coal Insights Bureau
2011, overtaking Japan, according to analysts.
India’s thermal coal demand may be even higher
if domestic coal supply is constrained by delays in
associated rail and port infrastructure projects. Cost
pressures from changing fiscal regimes such as the
carbon tax in Australia and the minimum export price
regulations in Indonesia will also support high thermal
coal prices.
As many as 18 power plants in the country are faced
with critical level of coal shortage, according to
minister of State for Power, K.C. Venugopal.
Of the 89 thermal power projects being monitored, 34
had fuel (coal) stock less than seven days and 25 had less
than four days stock, he said, while speaking in the Rajya
Sabha (the upper house of Parliament).
“None of the power utilities in the country has reported
that any of their thermal power stations are stuck for want
of coal, although inadequate availability of coal vis-a-vis
requirement has affected electricity generation in some of
the power plants,” he said.
Power utilities, he said, have reported a generation loss
of 8.7 billion units in 2011-12 (up to February, 2012) due to
shortage of coal. Listing steps being taken by the government
to mitigate shortage of coal for thermal power plants in
the country, he said Coal India is being asked to enhance
coal production while power utilities have been advised to
import coal to bridge the domestic supply deficit.
As many as 11 plants of state-owned NTPC lost 7.8
billion units because of shortage of coal during the current
fiscal. Other utilities that lost on generation of electricity
included ones in Madhya Pradesh, Maharashtra and
Andhra Pradesh, he added.
The budget announced cuts in import duties on coal.
The basic customs duty on steam coal was cut to zero from
5 percent with countervailing duty reduced to 1 percent
from 5 percent for fiscal 2012-13 or 2013-14. Analysts say
that the effective reduction in import coal cost is close to 9
percent.
COAL INSIGHTS 24 March 2012