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India coal demand to remain firm post-election despite investments in renewables

Market sources are optimistic that thermal coal demand in India will continue to be strong after incumbent Prime Minister Narendra Modi secured a landslide win in the country’s elections.

India’s Bharatiya Janata Party-led National Democratic Alliance won a second term in office, a sign that policies in the energy and commodities sector undertaken during their first term in power would continue in the same direction, analysts and market participants said.

This is also amid increased coal imports and upbeat views on the country’s economic development driven by the expanding manufacturing sector and growing demand for grid power.

India is the world’s second largest coal consumer after China, which imported 281 million mt of coal in 2018, around 70% of which was thermal coal.

India-based market sources told S&P Global Platts that with the re-election of Modi, the country’s policies are expected to remain largely unchanged.

“[Everything] looks good, but we’ll need to wait for new announcements and policies though. Some development projects should get funding for sure,” said an India-based trader.

“My personal view is India will, and have to stick to, traditional sources of energy for some more years … One view is that even if nobody buys, Asia and India will still keep buying,” said the trader.

According to the forecast by S&P Global Platts Analytics, India’s thermal coal imports are expected to grow by 12 million mt year on year to 184 million mt in 2019, while an additional 6.5 million mt is projected in 2020.

India’s official trade data showed that non-coking coal imports were at 14.9 million mt in February, down 2.8 million mt on month, but up 17% on a year-on-year basis.

Data from cFlow, Platts trade flow software, indicates that India’s imports held at February levels or higher over March to April, which implies steady year-on-year growth over this period.

Earlier this year, India’s Cabinet Committee on Economic Affairs approved investments worth Rs 11,089 crore ($1.5 billion) and Rs 10,439 crore into a power plant each in Uttar Pradesh and Bihar, respectively.

However, according to the International Energy Agency’s report this month, India’s investments in renewable sources are now outpacing those in fossil fuels.

Last month, the country raised its 2022 renewables capacity target from 175 GW to 227 GW.

“But that’s not to say the country’s hunger for coal is going away any time soon. It remains one of the world’s largest coal consumers. Investment in supply grew last year, supported by a policy favoring domestic production ahead of imports, although the fuel was still one of the country’s largest imports last year,” a World Economic Forum article said.

“At a time when other nations are curbing coal use, India is bucking the trend and the vast majority of the country is still powered by fossil fuels, mostly coal,” it added.

The South Asian country is looking to boost its domestic production, but its efforts have been constrained by a range of challenges, Australia’s March 2019 Resources and Energy Quarterly report noted.

These include domestic rail and other infrastructure bottlenecks, land acquisition and regulatory issues.

“In the medium term, India’s thermal coal imports are projected to fall back to 153 million mt by 2024, as some of these production constraints ease. However, this outlook is underpinned by considerable uncertainty, and primarily depends on the success of ongoing government efforts to reduce import dependency,” said the report.

In the near term, Platts Analytics expects stockpiles to fall post-election and Indian buyers will look to take advantage of falling prices in the seaborne thermal coal markets.

“We maintain that weakness in seaborne prices may see a revival of Indian import growth based on opportunistic buying and stocking up ahead of the monsoon season that begins in late May or early June,” Platts Analytics added.

Price of 3,800 kcal/kg NAR grade of coal was assessed Monday to be $37.50/mt FOB Kalimantan, down from $39.45/mt FOB on May 2.
Source: Platts

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