Coal demand softens as monsoon arrives early, stocks pile up at mines

An early monsoon, subdued heat, and tepid power demand have left coal miners with large pithead stocks, prompting a rethink of coal evacuation plans and long-term supply linkages

The coal peak has come and gone this summer, possibly the shortest spell ever recorded. The early onset of the monsoon and benign temperatures elsewhere have belied expectations of soaring demand for power and, consequently, for coal. The national grid has not seen aggregate demand soar beyond 220 GW even in the worst of days.

 

The coal-producing companies are thus sitting on a pithead stock of 160 million tonnes this week. Data from these companies show Coal India has run up a pithead stock (coal stocks waiting for buyers) of 102 million tonnes, with others, including private sector miners, having run up 58 million tonnes. Some of the overhang is also because coal consumers picked up less coal from the miners in earlier months. April ended with a de-growth of 1.2 per cent in offtake for Coal India, the miner with about 83 per cent share of total coal mining in the country.

 

This is also the time when fund houses peer under the hood to see how the coal-power economy is expected to perform. Those metrics could change this year. An S&P Global Commodities Insights report notes that stockpiles are at record levels. “The first half of this (calendar year) has limited prospects for increase. Should summer temperatures spur coal demand and construction/infrastructure demand could pick up,” noted Pritish Raj, Managing Editor of Asia Thermal Coal, at a media briefing. 

 

The softer demand from India has also kept the price of imports low. Indonesian coal has averaged $515 per metric tonne and Australian at $207 per metric tonne through 2025, a dip of close to 3 per cent from last year’s price.

 

The change is significant, since early this year the ministries of coal, power and railways had made detailed arrangements for rapid coal evacuation to thermal power stations, including plans for extra rakes. Those have not been needed so far. In early May this year, the Union government approved fresh coal linkages (licences for a committed coal supply) by modifying the existing Shakti policy, anticipating tightness in coal demand. 

 

The Cabinet Committee on Economic Affairs simplified the two windows under which these licences are given, offering flexibility to states to decide which power units, existing or new, would get a committed coal supply. Private power producers can merge their coal purchases from auctions with a committed long-term supply arrangement by paying a premium. They will not need to sell electricity at predetermined prices, offering them “the flexibility to sell the electricity as per their choice”, the cabinet note said. It added that by “allowing flexible linkage for new capacity addition with or without PPA with a tenure ranging from 12 months to 25 years will encourage IPPs to plan new thermal capacities, which will help in achieving the future thermal capacity addition”.

 

These were timely steps as summer approached. Instead, as the monsoon rolls into peninsular and eastern India, coal companies have to quickly move to save those stocks and ease up on underground mining. Normally, coal companies start shuttering underground mines and make provisions to drain water from the opencast mines from the month of June. Each year, coal supplies typically dip in the monsoon months since the underground mines become unsafe to operate, while the opencast mines face their own challenges. The supply recovers from September onwards.

 

For Coal India, the total output in the July to September quarter last year was 3.4 per cent lower year on year. It had dropped to 152.06 million tonnes, compared to the same July to September quarter of FY24 at 157.43 million tonnes.

 

The extended monsoon trends of FY25 could mean the dip would happen from the first quarter itself. With a much larger pithead stock, the coal miners are not worried at this stage, since the demand from thermal coal plants too comes down in the same period.