India not quite the shining knight for coal miners – by Clyde Russell (Reuters India – March 14, 2013)

(Clyde Russell is a Reuters market analyst. The views expressed are his own.)

(Reuters) – Rising Indian coal imports are the knight in shining armour for producers from the Americas through Africa to Asia — at least that’s the impression the industry is keen to give.

That India’s coal imports have no option but to rise and the only matter in dispute is by how much, was the consensus of producers and consumers at the Coaltrans India conference this week in this resort state an hour’s flight south of Mumbai.

But is the consensus based more in hope than reality? The thing that is always striking about India’s coal sector, for both domestic production and imports, is that forecasts are rarely correct.

India’s coal demand was around 730 million tonnes in the 2011/12 fiscal year, with about 100 million tonnes of that met through imports. The consensus of forecasts at the Coaltrans event is for demand to rise to about 1.1 billion tonnes by the end of the current five-year plan in 2016/17.

Some of this 370 million tonnes increase in annual demand is expected to be met by state-controlled Coal India, the world’s biggest miner of the fuel.

However, there is likely to be a shortfall in the region of 200 million to 250 million tonnes, which global producers are hoping to fill.

Certainly imports have been increasing dramatically in India, with arriving cargoes jumping 29 percent to 112.8 million tonnes in the April to January period, the first nine months of the 2012-13 financial year.

Looking at the split between thermal and coking coal it’s clear that imports of the lower-grade fuel for power stations are increasing at a faster rate, mainly as a result of the lower prevailing international prices and Coal India’s ongoing inability to increase production sufficiently.

Demand for coking coal for steel-making is also expected to surge as India plans to nearly double steel capacity from the current 70 million tonnes to about 130 million tonnes by 2014/15.

With increasing uncertainty over the trajectory of Chinese coal imports, it would seem that India may well be the nirvana coal miners seek, offering a lifeline to U.S. producers who have been pummelled by the shale gas revolution as well as underpinning expansions and new projects in places such as Mozambique and Australia.

But while the demand for coal is likely to be fairly close to the consensus forecast, there remain serious question marks over whether this demand can actually be fulfilled, even if global supplies are plentiful.

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