Indian thermal coal buyers have started paying sky-high prices to import the fuel, unlike the traditional low-cost buying model, as domestic stocks near critical levels amid soaring demand for fuel. summer electricity, sources told S&P Global Commodity Insights April 28.
Several exchanges to India for 4,200 kcal/kg of GAR coal of Indonesian origin were concluded in the week ending April 29 at $95-98/mt FOB for Panamax and Capesize vessels.
Utilities inventories stood at 21.445 million tonnes as of April 26, enough for just over seven days of coal burning, according to Central Electricity Authority data, leaving buyers with little choice but to pay such high prices.
“I don’t think Indians have paid those levels before. This is historically high,” said a Singapore-based trader. The average price of Indonesian thermal coal paid by Indian buyers in fiscal year 2021 [April-March] was $49.02, according to government data.
The development comes amid a global supply shortage as Europe decided to cut itself off from Russian supplies due to its invasion of Ukraine. European buyers are looking for Asian cargoes to fill the void created by the absence of Russian tonnages.
“Indian import demand is strong and they are filling the void left by China, but it is only temporary due to strong Indian demand,” said an Indonesia-based trader.
Stating that India has never been a price driver on a sustainable basis, the trader added that “when the monsoon starts the demand for electricity will decrease and it will again depend on how China behaves in the market” .
An Indian trader said Capesize’s freight rates could be the factor that makes Indonesian coal imports viable for Indian traders.
“I buy coal from Indonesia even at current prices because the supply mainly goes to non-energy sectors in southern India. Although the effort will be not to pass on the cost in the interim, it cannot be guaranteed given the price levels,” said an India-based trader.
Domestic supply conditions
On April 13, New Delhi ordered all utilities to speed up imports to avoid a supply shortage.
“Imported coal arrives for NTPC, state-run power plants and general industrial purposes. Captive power stations and industry received little or no coal from Coal India Ltd., and even contractual supply through the railways was reduced or halted in the name of prioritizing the energy sector. electricity,” said Indian Captive General Secretary Rajiv Agarwal. Association of Electricity Producers.
“Many [industrial] units about to close are buying coal at unsustainable prices because if production stops it could lead to industrial unrest as markets will then be overtaken by imported goods.
Experts have pointed out that high electricity tariffs in the country’s spot power markets could also affect Indian buyers agreeing to source expensive coal. Some power stations are able to sell electricity at higher tariffs, with the average price in spot electricity markets being Rs 11.85/unit from April 20-28. The average price of electricity in the same exchange in the financial year 2021-22 was 4.39 rupees/unit.
Amid dwindling coal inventories, the peak electricity demand satisfied in the country was 200.65 GW on April 27, 15.66% higher than on the same day in 2021. The shortage of coal supply electricity recorded on April 27 was 198.51 million units, compared to a shortage of 7.91 million units recorded on the same day in 2021.
S&P Global announced on April 25 that mine stocks at Coal India mines stood at just over 60 million tonnes as of April 1, down 39.39% on the year, as supply of coal has not increased in proportion to the increase in electricity demand in the country.
Globally, thermal coal prices have remained bullish since 2021, when the Indonesian coal price of 4,200 kcal/kg GAR hit a record high of $158/mt FOB on October 19, 2021, according to data from S&P Global. Prices then fell to $67/mt FOB on December 31, 2021 before rising to $89.95/mt FOB on April 28.
Thermal coal imports by power utilities in India fell 43% year-on-year to 24.16 million tonnes between April 2021 and February 2022, according to the latest available data from the CEA.