Prices are same, but power companies look to foreign shores for coal

Power producers are on the lookout for cheaper coal even as the price of imported coal is almost on a par with that of the domestic variety.
 
Distress purchase and Colombian shipments are some of the new sourcing strategies.
 
“Indian companies are cost-sensitive and on the lookout for cheaper options, especially when vessel freight rates are favourable,” said Deepak Kannan, managing editor, S&P Global Platts.
 
This focus on cheaper coal has led to two major private power producers, Tata Power and JSW Energy, devising their coal-sourcing strategies.
 
“We try to buy distressed shipments, for instance, shipments meant for a power plant that is facing a shutdown,” said Praveer Sinha, chief executive officer and managing director, Tata Power.
 
This strategy has helped the company cut raw material cost for its Coastal Gujarat Power (CGPL) plant in Mundra.  Sinha has a team to help spot such shipments and has been at work for the past one year. Others like JSW Energy have taken a long-term approach, spotting geographies that provide cheaper coal on a sustained basis.
 
“We have been sourcing coal from various geographies, depending on the most optimal fuel cost — South Africa, Mozambique, Indonesia, Russia, and Colombia — and the basis of selection is to get the best calorific value,” said Sharad Mahendra, director and chief operating officer, JSW Energy. Prices of coal from Colombia are attractive, he said.

 
JSW Energy is not the only Indian firm focusing on Colombia. “It has gained popularity in the Indian thermal coal market despite the long voyage time of 39 days compared with places closer,” said Kannan.
 
In the case of distress coal as well Colombian coal, the cost has been a deciding factor. Sinha said 10 per cent of the company’s imported coal requirements has been distress coal at a discount of 20 per cent of the prevailing market price.
 
Kannan said: “Currently, Indian companies are at the forefront of exploring seaborne price arbitrage opportunities amid the recent uptick in Kalimantan (Indonesia) high-calorific thermal coal prices. With Colombian 6,000 kcal/kg NAR coal prices dipping 8.4 per cent over six months, it has gained popularity in the Indian thermal coal market despite the longer voyage time of 39 days compared with other closer origins.”
 
This coal is linked to an index reflective of sourcing by European utilities. This is at present weak due to Europe’s thrust on clean energy. Some power companies are also cutting the freight cost involved in Colombian coal through their own shipping arrangements.
 
According to Export Import Data for India, in the current financial year, India’s steam coal imports from Colombia are close to the quantity imported for FY2019. In addition, the data shows imports from geographies like the Netherlands, Iceland, Belgium and the UK, though in smaller quantities. In FY19, India did not import coal from any of these four countries.