4 Coal Insights, March 2014

COnTEnTs

34 | CovER StoRyA coalossal waste India’s coal imports to cross 170 mt in FY14, leading to a national waste of `27,000 crore.

24 | SpECiAl FEAtuREpower sector woes cast shadow on conveyor belts sector Belting majors like Phoenix Conveyor sees mid-term hope rising from slowdown ashes.

Publisher’s StatementStatement about ownership and other particulars about Coal Insights required to be published under Rule 8 of the Registration of Newspapers (Central) Rule, 1956.

FORM IV(See Rule 8)

1. Place of publication : Kolkata2. Periodicity of publication : Monthly3. Printer’s Name : CDC Printers Whether citizen of India : Yes4. Publisher’s Name : Rajarshi Chattopadhyay Whether citizen of India : Yes Address : Tata Centre, 43 Jawaharlal Nehru Road Kolkata 7000715. Editor’s Name : Rakesh Dubey Whether citizen of India : Yes Address : Tata Centre, 43 Jawaharlal Nehru Road Kolkata 7000716. Names and addresses of individuals who own : mjunction services ltd, the newspaper and partners or shareholders Tata Centre, 43 Jawaharlal Nehru Road holding more than one per cent of the total capital Kolkata 700071 I, Rajarshi Chattopadhyay, hereby declare that the particulars given above are true to the best of my knowledge and belief. Sd/- Rajarshi ChattopadhyayDated: March 2014 Publisher

6 Spot stream coal prices ease on low demand

8 Coking coal prices continue easing in March

10 CIL, SCCL showing signs of aging?12 Indian power sector’s capacity addition

at 2,711 MW in Feb16 CILassuresresolutionofofficers’

demand in 3 months18 India’s cement production up 5.8% in

Jan m-o-m 20 Pet coke demand may ease in India if

cement demand increases 22 Raw materials shortage impacting

sponge iron sector26 Phoenix sees mid-term hope rising from

slowdown ashes 28 Somi: Powered to move the world 32 ‘Spare’ a thought for belt conveyors 39 ‘Coal imports to pick up in 2014-15’41 ‘Imported coal prices to remain stable’ 42 “A toothless coal regulator can’t cleanse

the coal market”46 MoEFmayneedtoreviseflyash

utilisation norms: CEA49 Coal washeries should be dovetailed

with existing CHPs54 MBE CMT scores 25% growth in order

intake in FY1455 China’s loss of manufacturing

competitiveness should be India’s gain56 Phoenix gets an edge with 2 new

products 64 Port data

6 Coal Insights, March 2014

COAL mARkET funDAmEnTALs

Coal Insights Bureau

Spot steam coal prices showed a weak trend in March 2014 as buyers stayed away from the market amid low

demand from India and China, industry sources said.

South African coal (6,000 kcal/kg NAR) prices remained stagnant at $75.5 per ton FOB on March 20 compared to $75.5 per ton FOB on February 28. Australian coal (6,300 kcal/kg GAR) prices fell to $72.75 per ton FOB on March 20, from $77.75 per ton on February 28, according to information available with Coal Insights.

Indonesian coal (5,900 kcal/kg GAR) prices also dropped marginally to $69 per ton FOB on March 20, compared to $70 per ton on February 28. Prices of Indonesian coal (5,000 kcal/kg GAR) eased to $55.25 per ton FOB on March 20, compared to $56.25 per ton on February 28.

Sources said that Indonesian thermal coal prices eased due to lack of demand from both China and India. There was hardly any deal heard from the Indian market.

High stocks at Chinese ports and weak domestic prices kept the country’s imported thermal coal buyers at bay, the sources said, adding that stocks at Qinhuangdao port are still in excess of 8 million tons (mt).

In China, demand for coal remained subdued even after the Chinese New Year celebrations were over. Winters in China have led to a drop in procurement levels. An increase in shipping costs of the Newcastle, Australia, to South China trade route has put off some Chinese traders from executing deals for seaborne cargoes.

Outlook bearish on oversupply

Thermal coal prices are likely to fall in 2014 as mining output increases in an already oversupplied market while demand in emerging markets drops, analysts said, amounting to a third straight year of decline.

Prices of coal, the top fuel used to generate electricity in the world, have halved from a peak in 2011 and are down almost 70 percent from their all-time highs in 2008. Analysts say they are likely to weaken further.

“As global output is now set to expand, we believe the supply overhang will persist and revise our forecast for (Australia’s) Newcastle coal lower to $74 per ton as an average for 2014, down from $82 per ton previously,” Bank of America Merrill Lynch said in a research note. “We also expect front prices in Europe to hit $70 per ton at some point during 2Q (the second quarter of 2014),” it added.

Analysts said that Chinese efforts to begin using more natural gas for power generation rather than coal, which is dirtier, could further erode thermal coal markets.

“A combination of widespread loan defaults...and clean air initiatives in China could spell even more trouble for sea-borne coal in the months ahead,” Bank of America Merrill Lynch said.

China’s Premier Li Keqiang this month said the country would “declare war” on pollution and that the government would unveil detailed measures to tackle what has become a hot-button social issue.

Despite the current oversupply and weakening demand, analysts said prices could begin picking up towards next year. “The situation should improve in 2015, when demand from Asia (primarily India and China) has the potential to act as a primary catalyst in hastening the reduction of the current oversupply in the market,” Societe Generale said.

Steam coal FOB ($/ton)

Dates South Africa6000 NAR

Australia 6300 GAR

indonesia5900 GAR

indonesia5000 GAR

indonesia4200 GAR

indonesia3800 GAR

3-Mar-14 75.75 77.50 70.00 56.25 38.20 32.25

4-Mar-14 76.50 76.20 70.00 56.25 38.10 32.25

5-Mar-14 76.00 75.50 69.75 56.25 38.20 32.25

6-Mar-14 75.80 75.50 69.70 56.25 38.20 32.25

7-Mar-14 75.75 75.00 69.70 56.20 38.10 32.25

10-Mar-14 75.10 73.00 69.70 56.00 38.00 32.25

11-Mar-14 75.50 72.60 69.70 55.60 37.75 32.40

12-Mar-14 75.50 72.75 69.70 55.60 37.60 32.40

13-Mar-14 76.30 73.25 69.90 55.60 37.60 32.25

14-Mar-14 76.20 73.80 70.00 55.60 37.50 32.15

17-Mar-14 76.50 73.80 69.30 55.50 37.25 32.00

18-Mar-14 76.60 74.00 69.30 55.50 37.25 32.00

19-Mar-14 75.80 73.00 69.00 55.25 37.10 32.00

20-Mar-14 75.50 72.75 69.00 55.25 37.10 32.00

Meanwhile, Chinese domestic thermal coal prices are on a downtrend leading to muted demand from China for imported coal. Blended, Panamax cargoes of 5,000 kcal/kg GAR coal are being offered at $55 per ton FOB for March loading, but Chinese buyers are not willing to pay that price.

Prices moved upwards marginally for South African coal amidst increased demand from the country’s power sector and delay in loading for exports from Richards Bay Coal Terminal (RBCT). However, the lack of deals from India and China curbed any steady increase in prices.

Trade sources said India’s thermal coal imports have dropped significantly in March this year amid high stockpiles at power plants. Import demand was also affected by the firming up of freight rates due to higher demand for grain shipments in some routes.

For India, however, the medium to long-term outlook for imports remains positive given the slow growth in domestic output. According to sources, Indian utilities will start stocking up around April-May ahead of the monsoons which will see a demand spike. But buying volumes may not be much as power plants had entered 2014 with sufficient stocks as compared with the past few years.

Spot steam coal prices ease on low demand

34 Coal Insights, March 2014

COvER sTORy

India’s coal imports to cross 170 mt in FY14

A COALOSSAL WASTE

There is no stopping the coal import juggernaut. Despite the currency depreciation and prolonged economic

slump, India’s coal imports continued to surge in 2013-14 and are expected to cross 170 million tons (mt), notching up a 17 percent growth over 145 mt imported a year ago.

According to data compiled by Coal Insights, imports of coking and non-coking

coal through the 31 coal ports of the country stood at 142.4 mt during the first 10 months (April-January) of 2013-14. With average imports of 14.2 mt per month, the overall figure would reach 170.8 mt.

The above estimate comes close to the initial forecast by Insights Research, which had projected total imports of 170 mt in the year under review. This figure, however,

excludes other varieties, ie, anthracite, met coke, pet coke and PCI.

What does this imply for the domestic economy?

If we say, a forex outgo of $17 billion (`105,400 crore), it will mean little. But, if it’s said the country has thrown away `27,000 crore into the high seas, it may signify something. Strangely, very few – be

Arindam Bandyopadhyay

This could translate into a cost differential of `27,000 crore between imported and domestically procured coal and a forex outgo of $17 billion! However, no one seems to be taking note of these figures…

Coal Insights, March 2014 35

in the government or the industry – consider import of coal, especially the thermal variety, as a national loss. When you don’t consider it a loss, you don’t take action to rectify. And a slumping economy continues to sink…!

Steaming coal The worst aspect of India’s bulging coal imports is that the major part, almost 80 percent, comes as thermal or steam coal, a material having rich reserves in the country. A break-up of imports in 2013-14 shows that the entire increase of 25 mt in coal imports (over 2012-13) would come in the form of thermal coal.

As a result, the share of thermal coal would increase further in 2013-14 as compared to a year ago. Of the total expected coal imports of 170 mt, thermal coal would comprise 135 mt, while coking coal may reach 34 mt.

In 2012-13, steam coal imports accounted for 112 mt (77 percent), while coking coal imports stood at 32.9 mt (22.6 percent). The volume of other varieties (anthracite, met coke, pet coke, PCI coal) stood at 7 mt in 2012-13 and is likely to remain somewhat unchanged in the year under review.

Over the last five years, steam coal imports have doubled from 67.7 mt in 2009-10 to 135 mt in 2013-14, at an average annual growth of 19 percent.

In comparison, the country’s coking coal imports have been rather flat over the last five years. While the import of steam coal has increased by 67.5 mt since 2009-10, that of coking coal is only 7 mt. The average annual growth during the period was 5.8 percent.

Power playThe unhindered growth in thermal coal imports is driven by the unconstrained increase in India’s power generation capacity. A sector-wise break-up of import data shows that almost the entire growth in steam coal imports over the last five years has been accounted for by the power sector. As was the case with thermal coal imports, the power sector’s coal imports are also expected to nearly double between 2009-10 and 2013-14.

The country added a record 54,964 MW of new generation capacity in the Eleventh Five- Year Plan (2007-12) period, taking the total installed capacity to more than 200,000 MW. The capacity addition in the Eleventh Plan was

about two-and-a-half times the capacity added in the Tenth Plan (2002-07). In the Twelfth Plan (2012-17), the country plans to add total capacity of around 88,000 MW.

As the majority of the capacity additions came in the thermal sector, the demand for coal shot up within a short span, much to the chagrin of the domestic coal producers – Coal India Ltd (CIL) and Singareni Collieries Company Ltd (SCCL).

In line with the government’s ambitious power expansion plans, India’s largest (thermal) power utility, NTPC Ltd, charted out its goals to reach a total installed capacity of 75,000 MW by 2017 through greenfield, brownfield, joint ventures and acquisitions. While expanding capacity at great speed, the utility could do little to mine its own coal from the captive blocks allocated by the coal ministry, in the process, becoming more and more dependent on imported coal brought at higher costs. Besides, the ultra-mega power projects (UMPP) of 4,000 MW each, coming up at various locations across the states, propelled the import of thermal coal.

In comparison to the power sector, the other sectors consuming thermal coal – sponge iron, cement, paper and pharmaceuticals – showed little or no growth in coal imports since 2009-10.

Indonesian exploits A country-wise break-up of coal import data shows that almost the entire growth in coal imports, especially thermal coal imports, could be attributed to the increasing imports

COvER sTORy

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2010-11 2011-12 2012-13 2013-14

Import (mt) Increase (mt) Growth (%)

Growth in India’s thermal coal imports

29.37 28.7632.9 34

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2010-11 2011-12 2012-13 2013-14

Import (mt) Increase (mt) Growth (%)

Growth in India’s coking coal imports

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Coal Insights, March 201466