India Facing A Massive Coal Supply Shortage

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What has happened?

Amid rising demand following the second wave of Covid-19 pandemic, India is facing a severe shortage of coal on the domestic front.
While Coal India has assured of scaling up production to meet the current demand, rising prices of imported coal has made it difficult for Indian firms to run their operations smoothly.
With rising power demands in the domestic sector, Indian utilities are facing a severe shortage of coal, which is the primary fuel powering 70% of India’s energy consumption.
Even as Coal India, the country’s largest coal producer, has announced to increase supply to meet the domestic demand, many coal-fired power plants have a few days of stock left, which is unlikely to be met in the short time unless coal is imported.
However, coal has become a priceless commodity of late in a white-hot market with an over 100% jump in prices, which is driven mainly by China and India — the two largest consumers of thermal coal globally.

According to the Central Electricity Authority (CEA) data, 16 of India’s 135 coal-fired power plants had zero coal stocks as of September 29.
Over 80% of the plants had less than a week’s stock left, while over half of them had stocks that would last fewer than three days.
Overall, the domestic coal power plants had only four days of coal left as of September 29.
India imports around 300-400 million tonnes of coal, primarily from Indonesia, Australia and South Africa.
Coal India produces over 600 million tonnes of coal for domestic consumption.
Now, with a domestic crunch, India’s reliance on Indonesia for coal import has increased.

India’s industrial power consumption saw a dramatic increase following the second coronavirus wave earlier this year.
In the first eight months of 2021, the country’s power demand increased by 13.2%.
The sudden spike came after the power demand declined for the first time in over three decades in 2020 due to the coronavirus-induced slowdown.
To meet the rising demand, Coal India, which accounts for over 80% of India’s coal, supplied about 243 million tonnes of coal to power companies from April 1 to September 28.
This is 24% higher than the same period last year and 11% more than April-September 2019.
In India, some companies have a fixed coal linkage with Coal India and its subsidiaries which assures them of a specific coal supply in a year.
However, this time, heavy rains at several mines in the country and logistic woes have created a shortage of domestic supplies.
Every year, Coal India asks utilities to stock up before the beginning of the monsoon season when rains make transport and output of raw materials difficult.
Despite this, many coal firms could not stock up sufficiently due to domestic supply on the shorter side and the imported coal being at a record high.
This has led many companies, especially on the coastal line, which run primarily on the imported coal, to curtail production or shut down their operation.

The spike in demand for thermal coal is not limited to India.
With Covid-19 vaccination in full swing in many countries, the global economies are scaling up production to reach their pre-pandemic levels.
China, the biggest consumer of coal, is facing a severe shortage, with many reports suggesting that the country’s government has placed restrictions on power use in homes and shops.
China is also the biggest producer of coal.
With its large-scale domestic industries facing a power crisis, China has effectively put restrictions on the export of coal and is competing for imported coal in the international market.
This has led to thermal coal prices and freight costs soaring in the international market, witnessing over a 100% increase this year.
In August, Indian coal firms imported 1.9 million tonnes of coal, which was 42% lower than August 2020, data by CEA showed.
This shows the reluctance of Indian utilities to import coal amid soaring prices, and with domestic supplies not sufficient, many firms are left with no option but to scale down their production.

Earlier this week, Coal India said it would increase production to meet the domestic demand.
The announcement saw a significant effect on its shares as it was last trading 1.86% higher at Rs 188.35.
Shares of other power producers such as NTPC Ltd, Tata Power and Torrent Power also have been rising rapidly this week.

However, the scaling up of production requires higher input cost, which is difficult in India as the state-run distribution companies have absorbed rising prices to keep power tariffs steady.
According to a report in PTI on September 13, Coal India has informally discussed the matter with board members and most of them have acknowledged the need to hike the prices of coal.
The state-run firm raised coal prices by at least 10-11%, which would be the first hike in dry fuel since 2018.

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