 "James O'Connell")
James O’Connell, editor-in-chief of Platts, the premier global provider of data and analysis for the energy and metals markets, tells Rajesh Bhayani that utilities have started stocking coal to take advantage of lower prices. And, that in the next three to five years, India could emerge as the world’s biggest thermal coal importer. Excerpts from an interview:
With international thermal coal prices falling, what are your projections for India’s demand?
India’s thermal coal imports have gone up significantly. In the current year from January to June, imports are up 40 per cent compared to the previous year and in the first eight months, by around 30 per cent. In the past couple of months, imports came down as the monsoon is considered a lean season for coal. Some of the big banks have forecast India’s imports in 2013 at 140 million tonnes. If the rupee now remains stable around even the current levels, India’s imports will be much higher than forecast by these banks. Prices of coal, depending upon calorific value, have come down by 25-40 per cent.
Are lower prices prompting more imports?
The lower rupee will limit the gains due to the lower price in the international market. But, power utilities which used to work on a hand to mouth basis in stocking coal are now stocking a lot more. It is not clear if that is a major change in their policy, to have more coal available, or a combination of this and additional capacity that has come on line. However, Indian demand has in a limited way helped global prices from falling even more sharply than these already have.
Given the differential, what is the price outlook?
Globally, there has been a structural change in the coal market, now in an over-supplied scenario. Indonesia’s production has doubled in four years to have about 400 million tonnes in exports. Australia’s production and exports also went up by 50 mt. Because of shale gas, the US, which was importing 40 mt from Colombia four years ago, is now exporting that much and more. And, Colombia is looking for new markets for its coal, where it also has to compete with the US.
These changes will keep prices of thermal coal under pressure for some time. Take and pay agreements between Australian producers and the rail network means they are pumping out the tonnes in a bid to reduce their unit costs. While India is not importing much from Australia right now, it has been importing a whole lot more from Indonesia and has prevented prices from further sharp falls. Looking longer term, and given the expected capacity builds over the next five year, it’s entirely possible that India could become the world’s largest importer of thermal coal in the next three to five years. Last year, it surpassed Japan and became number two after China.
How are international players looking at India?
Several international trading firms have become active in supplying coal to the Indian market including Glencore, Cargill, Traffigura, Coal & Oil etc. and from India you’re looking at companies like Knowledge Infrastructure Systems, also Adani has emerged largest coal importer for its captive use as well as for trading. There’s no doubt that global trading firms are looking at major growth possibilities in India.
