http://www.ft.com/intl/commodities-note
Domestic supply growth is weak and unlikely to improve soon
Could India soon overtake China as the world’s biggest consumer of seaborne thermal coal? For many miners and traders, the answer to that question, posed at the Financial Times’ inaugural Commodities Retreat in Singapore last week, is yes.
Coal is India’s most important energy source – supplying more than half of all power stations – and the country, alongside Korea, is emerging as one of the few bright spots in the 1bn tonne a year seaborne thermal coal industry.
In the wake of adverse legal rulings – the Supreme Court recently cancelled more than 200 coal licences held by dozens of private sector groups – miners and traders are tipping strong import growth from India. They say domestic supply growth is weak and unlikely to improve in the foreseeable future because of bureaucratic and infrastructure challenges.
Glencore, the world’s largest producer of high quality thermal coal, told analysts on a recent site visit that it expects Indian annual imports to rise from 150m tonnes, to 180m tonnes in 2015 and 300m tonnes by 2020.
While that forecast is at the bullish end of market forecasts, few believe India’s heavily regulated mining sector will be able to dig up enough coal to satisfy local demand.
Slack demand, supply growth and a stronger US dollar have combined to drive the price of thermal coal lower. Benchmark Australia coal, for example, has fallen 20 per cent this year to around $656 a tonne. Yet it is also an increasingly scarce commodity with stocks at their lowest level since 2008.
But imports are starting to fill the gap. The latest port data shows that India imported 12.7m tonnes of thermal coal in August, up 22 per cent year on year. Analysts reckon there could be further growth between now and the end of the year.
“The monsoon has just come to an end, which will help [because hydroelectric generation will fall], stocks are low and seaborne thermal coal prices are very weak and India likes cheap international coal. Put all that together and India should be importing more,” says Stefan Ljubisavljevic, analyst at investment bank Macquarie
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