Currently trailing only China in terms of gross domestic product growth, India has become a key destination for Asia-Pacific coal suppliers as domestic supply capability falls behind demand.
According to Barlow Jonker’s recently released study – Indian Coal Profile 2007 – this demand can only be expected to increase over the next 10 to 15 years and could be almost three times greater than today by 2020.
Coal is imperative to Indian economic growth, currently meeting 54% of the country’s power requirements.
In 2006, India imported 47.5 million tonnes of coal, growing by just over 9% year on year. This year, imports are expected to rise some 6.3% to 50.7Mt and are forecast to reach a staggering 129Mt by 2020.
Current imports are split roughly 50:50 between thermal and coking coal, with imports of pulverised coal injection (PCI) coal at just over 1Mt a year.
At present, Indonesian mines are dominating thermal coal supply to India – peaking at 18.6Mt in 2006.
Indonesian coal is attractive to Indian buyers for two primary reasons: it is geographically nearer, which enables savings on shipping costs; and the general coal quality (sub-bituminous) means relatively lower prices.
China, South Africa and Indonesia have been challenging Australia’s share of India’s thermal coal imports in a highly competitive market. South Africa has clawed back from 2004 shipments to India of just 700,000 tonnes – to reach 3.85Mt last year.
China shipped 3.8Mt to India last year – but has now officially become a net importer of thermal coal and may not be a seller in the future.
Australia supplied 18.1Mt of metallurgical coal last year, accounting for almost all of India’s coking coal.
India itself is a major coal producer, the world’s third largest. Barlow Jonker research indicates that some 388.6Mt of coal was produced domestically in 2006, expected to rise to 407Mt this year and climbing to over 750Mt by 2020.
Despite this growth, there will be a significant supply shortfall.
The government-owned Coal India has outlined an aggressive growth plan to lift its own coal output to over 700Mt by 2021, but most industry observers do not believe this can be achieved.
India’s inability to meet domestic coal demand is attributed to several factors, including low profitability and productivity at the government-owned mining operations of Coal India and Singareni Collieries.
For example, in those operations in 2004-05, productivity was estimated at 0.37 tonnes per man-hour – compared with Australia’s figure of 8.24tpmh.
In addition, coal transportation and infrastructure capacity in India is severely limited, while local coal quality is regarded as being poor, with coal containing high ash and moisture content.
Surging domestic demand for power and steel is driving India’s appetite for coal. Barlow Jonker forecasts coal-fired power generation capacity to grow from 69GW in 2006 to 130GW by 2020. Coal’s share of the generation market will decline, but is likely to remain above 60%.
The Indian Central Government’s latest electricity generation growth plan involves five coastal “ultra mega power plants” that will rely on imported coal. Barlow Jonker anticipates that although only two of the “ultra” plants will be onstream by 2020, they will require up to 28Mt of imported coal.
Meanwhile, India’s steelmaking capacity will soar on the back of demand for housing, infrastructure and transport, with annual crude steel production forecast to grow by 20Mt – to 58Mt – in 2010.
This is expected to increase coking coal consumption from 28.5Mt in 2006 to 37.9Mt by 2010 – with PCI consumption doubling to 2.7Mt in 2010.
Despite uncertainties in forecasting Indian supply and demand, such as Coal India’s ability to bring on new supply, the outlook for coal imports appears “very strong”, according to Barlow Jonker.
Imports currently enjoy a supportive tariff structure, but whether this continues depends on future Indian government policy.