4 Coal Insights, April 2016

COnTEnTs

23 Steam coal offers cool down in April

24 CokingcoaloffersfirmupinApril

25 India’scoalproductionat568mttillFebruary

26 Pitheadvendiblestocksup

27 SCCLoutputup14.9%inFY16,exceedstarget

27 Singareniclocks108%growthinPAT

30 CoalControllers’Officesetforrevamp

32 Indiaadds660MWgenerationcapacityinFebruary

33 India’sFebruarycementoutputedgesdown0.38%m-o-m

36 “Privatisation,notauctionofblocks,isthewayforward”

38 Govttoallocate16coalminestostatePSUs

39 ‘Coalusers’focushasshiftedtoquality’

40 Corporateupdate

42 ejunction:connectingpeople

43 Coalhandlingbymajorportsup10.33%in2015-16

44 Railways’Februarycoalhandlingdown10%m-o-m

45 Greenclearancesmajorhindranceto1billion tons

50 Inappropriate tools have impact later

56 USpowersectorcoalconsumptionestimatedtofall7%in2016

57 Australiancoal:WouldIndiabeitslifeline?

62 E-auctiondata

64 Port data

34 | SPECIAL FEATURECoal block auctions a year after: A bitter pill As the blocks fail to start production, industry fears another round of de-allocation and re-allocation.

28 | FEATUREDiscoms’ hopes rise with UDAYTen 10 states have joined UDAY scheme, but questions remain over the outcome.

31 | FEATUREPower cos buying renewable facilities to reduce coal cess pressureTata Power, Suzlon, NTPC, Torrent Power on a shopping spree, look for renewable options.

16 | INTERVIEW‘Coal sector outlook stable-to-positive for Q1’Thanks to coastal power plants, steam coal imports may go up to 250 mn tons, says Vipin Mahajan.

6 | COVER STORYIndia’s thermal coal imports drop 16% in FY16Provisional data show thermal coal imports have dropped by 29 mn tons last year.

6 Coal Insights, April 2016

COvER sTORy

Going, going, gone…?

IndIa’s thermal coal Imports drop 16% In FY16Arindam Bandyopadhyay

Coal Insights, April 2016 7

COvER sTORy

When India’s coal and power minister Piyush Goyal announced – before a full house at Coal India

Ltd’s (CIL) newly constructed head office at Rajarhat on the fringes of Kolkata in May 2015 – that India will stop importing steam coal within a period of 2-3 years, the statement raised quite a few eyebrows. But Goyal, buoyed by the ambitious roadmap unveiled by CIL for augmenting production, went on to add that the declining trend in steam coal imports would become visible as early as the end of the (then) current fiscal, ie, by March 2016, thus creating a further ripple in the audience that included a large battery of media present to cover the programme. There were sharp reactions from the industry, coal users and importers alike when the news travelled outside the venue.

However absurd it might have appeared then, the statement proved visionary as the months rolled by and, in fact, became evident as early as September 2015, when non-coking coal imports dropped by no less than 26 percent over the same month a year ago. The negative growth continued during the remaining six months of 2015-16 (except for February 2016). Now, as the year comes to a close, the provisional data indicate that non-coking coal imports have indeed declined sharply, by as much as 29.5 million tons (mt), or about 16 percent year-on-year.

It could be coincidental that just as the year-end data crept in, the minister reiterated his May 2015 resolve, saying it’s a matter of time that the country stops completely its imports of thermal coal for power generation. Now, despite the early fall, such claims of complete elimination of steam coal imports from the Indian shores still appear to be a conjecture, as new equations emerge in the demand-price-cost matrix of the Indian power sector. But then, in the ever-changing macro-economic scenario in India, it is becoming increasingly difficult to make forecasts as much as to reject them.

So, what is the present scenario like? What is the future of coal imports? How will India’s reducing appetite impact the global coal market? And how will the changing global market dynamics influence Indian consumers’ decision to continue

or stop imports, partially or completely? Coal Insights tries to find answers to these questions through a detailed analysis of the data available and through insights gained from the market.

The big plunge According to provisional data available with Coal Insights, total coal and coke imports by the Indian buyers stood at 219.5 million tons (mt) in 2015-16, which is about an 8 percent drop compared to 238.7 mt recorded last fiscal. This is also the first decline in more than a decade.

Of the total imports during the year, thermal coal comprised 159.5 mt and coking coal 45.2 mt. The remaining components include anthracite coal (1.135 mt), PCI (3.622 mt), pet coke (10.504 mt) and met coke (3.206 mt).

There were some remarkable changes noticed in the import basket in 2015-16. The biggest surprise, of course, was the substantial drop in thermal coal imports, by about 30 mt, half the volume of increase seen in the previous year. In 2014-15, thermal coal imports had jumped by about 50 mt after witnessing a 25 mt increase in 2013-14.

A month-wise break-up shows that only two months, ie, April and February, saw a positive growth in imports of thermal coal in 2015-16. Even in the month of July, when the import volume was the highest (14.654 mt), there was a negative growth vis-à-vis the year-ago period. If compared with the previous year, only the month of February

(2016) saw a significant increase, partly due to a low base effect. Also, imports of thermal coal during the last six months dipped to 75 mt from 80 mt imported in the first half of the year.

Yet another remarkable finding in last year’s thermal coal import data was the increased share of South African coal and a decline in material brought from Indonesian coasts.

India’s import of coal from the Richards Bay Coal Terminal (RBCT) in South Africa stood at 37.7 million tons (mt) during financial year 2015-16 (April-March), up 12.55 percent as compared to 33.5 mt imported in 2014-15, according to data available with Coal Insights. India accounted for as much as 50.9 percent of the total 74.20 mt of coal exported through RBCT in 2015-16 as Chinese imports stood nil during the year. India’s imports from RBCT Africa stood at 9.88 mt for the fourth quarter (Q4) of fiscal 2015-16 (January-March, 2016), up 24.7 percent as compared to 7.92 mt seen during Q4 of fiscal 2014-15.

In contrast, imports from Indonesia posted a decline from around 129 mt in 2014-15 to 101 mt in 2015-16. This was in line with a sharp decline in that country’s coal production and exports in recent months. In 2015, according to data released by Indonesia’s Energy and Mineral Resources Ministry, Indonesia’s coal production was estimated at 383 mt, a dramatic fall from 459 mt in 2014. Exports too dropped to 295 mt in 2015 from 382 mt in 2014.

83.7 89.1

112.3

136.7

185.4

155.9

29.4 32.5 32.9 35.8 41.5 45.2

5.6 6.4 7.8 9.1 11.9 18.5

0.020.040.060.080.0

100.0120.0140.0160.0180.0200.0

2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

NCC CC Others

India's coal and coke imports from FY11 to FY16 (in mt)

1 Import data are based on monitoring of vessels at Indian ports.

2 Figures for March 2016 are preliminary data subject to revision.

16 Coal Insights, April 2016

How would you describe the current situation in the coal market?

I think it is in a limbo today in the sense that consumption of coal has reduced though there has been good performance in terms of production and despatches by Coal India Limited (CIL). So, effectively from the import perspective, volumes have gone down marginally. But, I think, this is a transitory phenomenon. My view is that once the economy takes off, which may happen in six months to a year, coupled with an increase in power demand, coal consumption will naturally go up and imports should start improving by then.

At present, CIL has managed to offset the loss in supplies from the captive blocks and, in addition, it is producing much higher quantities of coal. On the other hand, though demand from the power sector has not come down, it has not grown in the way projected...

No. Generally, the plant load factors (PLFs) are down. Basically, it is a two-fold phenomenon. First, demand has come down, though not significantly, because

of the use of technology like LED bulbs. The major portion of the demand is from industry. But, because of the slowdown, factories are not running at full capacity and thus industrial demand for power has come down, reducing the PLF of the generating companies (gencos). That is why there is no coal shortage. And the gencos, because of poor financial condition of the distribution companies (discoms), have to do a lot of demand-side management.

However, the power generating industry in our country is still coal-dominated. Thus, coal consumption at present is a bit low though at the same time Coal India has produced more!

It is expected CIL may not achieve the 1-billion tons target, but will reach somewhere around 850 million tons provided there is demand and the proposed three major railway lines come up…

Absolutely. On that front, there are other issues like land acquisition, because the new production cannot come from the existing blocks but new blocks – the 400-500-odd mt CIL wants to add.

InTERvIEw

It is also felt that the entire additional production will not come from new blocks because CIL plans to increase capacities of some of the existing blocks too?

Absolutely, but this 400-500 mt cannot all come from the existing blocks. Secondly, railway constraints are still there and thus such evacuation may become an issue.

Government is of the view that at least one of the three major railway projects for coal evacuation will be in operation by June this year and others by 2017-18. The government also feels that the current low demand from power is mainly due to poor financials of the discoms and with the launch of the UDAY scheme, things will improve over the next 5-6 months. What is your view?

All the steps being undertaken by the government are in the right direction. But executing those in a country like India, with all its problems, is a challenge. Even if a couple of railway lines are added, these may not suitable for evacuation of 300 mt of coal because it is not just about transporting that coal till the main line.

Though Coal India is producing greater volumes of coal, things are in a limbo today because there is a general lull in the industry which means lower intake of power.

Hence, the plant load factor of the generating companies is low. On top of that, the coal auctions were not that great a thing to write home about, with most of the sold blocks failing to come to production till date. But things are likely to look up for the coal traders and India’s coal imports, despite the naysayers, could touch 150-250 million tons over the next five years, fuelled by the energy needs of the coastal power plants, Vipin Mahajan, Director, Knowledge Infrastructure System Pvt Ltd (KISPL), tells Rakesh Dubey of Coal Insights.

Coal sector outlook stable-to-positive for Q1

Coal Insights, April 2016 25

fEATuREfEATuREfEATuRE

Output at 81% of annual target

India’s coal production at 568 mt till February

Sanjoy Bag

India’s coal production crossed 568 million tons (mt) in the April-February period of financial year 2015-16 (FY16).

The production level in these eleven months was only 81.25 percent of the annual targeted volume of 700 mt.

The volume reported till February was also considerably lower than the target set for the first eleven months, i.e. 628 mt.

Going by this trend, the country is expected to fail to achieve the targeted production volume of 700 mt set for

fiscal 2015-16. Experts said it is virtually impossible to reach 700 mt at the end of the FY16 as the country can’t produce more than 132 mt of coal in a single month.

Of the total targeted production of 700 mt, 550 mt is to be produced by Coal India Ltd (CIL), 56 mt by Singareni Collieries Company Ltd (SCCL) and 94 mt by captive coal mines, according to provisional data available with Coal Insights.

India’s coal production during February 2016 stood at 60.12 mt, up only 3.87 percent from 57.88 mt in February 2015, the provisional data showed. CIL’s output

in February 2016 was 51.01 mt, below the targeted volume of 52.01 mt and also less than the January production of 52.86 mt. Earlier, CIL had missed its January production target of 56.18 mt as well.

SCCL, on its part, produced 5.37 mt in February 2016, recording zero growth over the same month a year ago. The February production fell short of the output recorded for January 2016. In January, the miner had reported a 7.10 percent annual growth in production at 5.73 mt.

Captive coal mines recorded a production of 3.74 mt in February 2016.

Captive output falls 18% y-o-yCoal production from the captive blocks in India fell 17.60 percent year-on-year to 3.74 mt in February 2016, compared to 4.54 mt produced in the corresponding month of 2015.

Coal output from the captive blocks was also less than the January production of 4.31 mt and December 2015 output of 4.14 mt. In November 2015, captive output stood at 3.84 mt.

34 Coal Insights, April 2016

sPECIAL fEATuRE

Coal block auctions a year after: A bitter pill

Madhumita Mookerji

What started out as a panacea prescribed by the Modi government to set right all the ills

in the coal mining and distribution system in the country, turned out to be a bitter pill to swallow one year down the line.

The ghost of unviability rears its ugly head even a year after the auctions and market sources openly say the new block owners do

not seem to be interested in mining their once hotly contested properties.

The government, on its part, has tasted stupendous success in the coal block auctions in terms of the proceeds of nearly `400,000 crore. But, many in the industry fear that if the captive mines are not able to come to production because of the high cost of coal, will it again be a case of de-allocation and re-allocation? To whom do these blocks go to in that case? Some say, it will be Coal India Ltd

(CIL), yet others say, the states where these blocks are located.

If market rumours are to be believed, four players have already surrendered their blocks, while there were reports that Monnet Ispat & Energy wanted to surrender its block in Odisha which it had bagged for its power plant, in the second round of the auctions.

As per another report, Mandakini Exploration and Mining, an unlisted company which is 27 percent owned by Monnet Ispat and Energy Ltd, also wanted to surrender its Mandakini coal block, citing economic unviability and that more companies could be in exit mode as well.

“Mandakini Exploration and Mining Ltd won the Mandakini coal block in the auctions with a negative `650/ton bid, implying an outgo of ̀ 550/ton of coal consumed from the

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