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Gradual Coal Demand Recovery Amid High Inventory To Keep Prices Subdued In FY21: Ind-Ra
China's coal production has bounced back to exceed the previous year's performance despite the COVID-19 outbreak.
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Coal prices are likely to be subdued in the current financial year on the back of low power demand and piling inventory at power stations, India Ratings and Research (Ind-Ra) said in its first edition of credit news digest published on Monday.
Domestic coal production remained subdued for the third consecutive month in June. Accordingly, the coal offtake reduced but improved month-on-month with the gradual relaxation in COVID-19 lockdown norms.
In July too, production and offtake are likely to be subdued due to union strikes at mines against privatisation along with the onset of monsoon season, said Ind-Ra.
However, China's coal production has bounced back to exceed the previous year's performance despite the COVID-19 outbreak.
Overall, domestic coal imports are likely to have been lower in July due to low domestic demand from end-user industries amid the COVID-19 outbreak.
Also, the government has mandated Coal India to replace at least 100 million tonnes of avoidable imports in FY21. Hence, overall coal imports declined for the third consecutive month and were down in June.
The share of imports in total domestic consumption reduced to 22 per cent in June from 28 per cent in FY20. While non-coking coal imports reduced 34 per cent, coking coal imports declined by 41 per cent.
While non-coking coal import prices have shown signs of recovery as the power demand picked up over May, coking coal import price is yet to catch up because the steel sector demand remains subdued.
Up to July, non-coking coal import prices declined by around 40 per cent from mid-January (pre-COVID levels) and coking coal import prices have had a free fall of around 25 per cent.
Considering the nature of respective end-user industries, Ind-Ra expects non-coking coal import prices to pick up gradually while coking coal prices may still take a while to recover.
India's electricity mix tilted towards renewable energy over the lockdown period with a higher share in total power generation. Major factors driving the shift towards renewable energy are availability, cost-effectiveness and priority access to grids.
Ind-Ra said commercial coal mining and the associated reforms announced by the government will go a long way in shaping the coal sector towards a more deregulated and competitive scenario.
The key is a robust implementation design and faster execution. Significant states' resistance over environmental concerns for some mines on offer is likely to stall the auction of such blocks.
Furthermore, a global shift towards greener fuels and simultaneous withdrawal from coal-based energy may be a key challenge to the participation of industry players, said Ind-Ra.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.