“Indian coal imports aren’t a big enough boost”

Mr Clyde Russell of Reuters wrote that Australian coal miners desperate for good news got a double boost recently, but India’s cancelling of private mining blocks and Indonesia’s new export rules are a salve rather than a cure for the industry’s woes.

An Indian court ruling scrapping the allocations of coal blocks to private operators will undoubtedly cut production and boost demand for imported fuel. And it’s also likely that new export permit rules being introduced by Indonesia will at least temporarily lower shipments from the world’s largest exporter of thermal coal for use in power plants. Also, it remains the case that many Indian power stations are critically short of coal, given the long-standing inability of state producer CIL and the railways to mine and transport adequate supplies.

All of this seems like manna from heaven for Australian coal miners, the majority of whom are unprofitable given the 25% decline this year in the benchmark Newcastle Port thermal coal price to USD 64.91 a tonne last week, a fresh 5 year low.

But there are a few reasons to be sceptical as to whether this will be a significant boost for coal miners, or just a serendipitous lolly in a bowl of bile.

The operating blocks among those, which were expected to produce an estimated 52 million tonnes in the current fiscal year, will be returned to Coal India by the end of March 2015. However, it’s likely that output from them will start to tail off prior to the handover, and that it won’t be ramped up quickly by CIL once it assumes control, given it will take time for the state behemoth to get to grips with the new assets.

All up, the coal shortage in India is likely to grow substantially, and may exceed even the top end of the government’s estimate of between 185 million to 265 million tonnes by the 2016-17 fiscal year.

India imported 168.4 million tonnes in the fiscal year ended March 2014, and researchers OreTeam expect this to rise to 210 million in the year starting April 2015, while Fitch unit India Ratings & Research says imports may rise as far as 230 million. The OreTeam forecast is a reasonable import demand assumption, and there is little doubt that India could use all 210 million tonnes of imports, and possibly even as much as the India Ratings estimate.

But the big question is whether the already strained port and rail infrastructure is ready to handle such an increase in volumes.

The Indian experience is generally that capacity increases are realised, but seldom in the time frames initially envisaged. There are also problems in getting projects coordinated, with the risk that a port may be ready to receive more cargoes but the rail not yet able to transport it.

According to data from trader mjunction, India’s imports surged 19% to 16 million tonnes in September. But even this jump in imports, if maintained, would result in annual imports of 192 million tonnes, which is higher than the 2013-14 outcome, but short of forecasts. It may be more realistic that imports could struggle to rise in the coming fiscal year above 200 million tonnes.

That would still sound fairly good to coal miners, especially those outside Indonesia. According to the coal industry, new rules may cut Indonesian exports by between 15% and 20% in October from September. According to the Indonesian Coal Mining Association, the Southeast Asian nation shipped between 25 and 30 million tonnes in September. Indonesian miners are worried that the regulations, aimed at ensuring compliance with laws and taxes, will drive some struggling companies to the wall.

Notwithstanding the issues surrounding the new export permits, it’s likely this will be only a temporary situation, meaning that the scope for rival miners in Australia, South Africa and even Colombia will be limited.

Coal from those suppliers is also more expensive to land in India than cargoes from Indonesia, meaning there may be some reluctance on the part of buyers to pay more that they are used to, even though prices are currently depressed.

Certainly, the coal futures market hasn’t priced in rising prices further along the curve, suggesting that investors haven’t yet bought into the idea of a demand-led revival.

international business

“Metal shares decline after China coal, iron ore imports drop”

India’s State Trading Corporation (STCI) and Metals and Minerals Trading Corporation (MMTC) have received one bid each for their tenders to import 20,000 tons rice from Myanmar, according to local sources.

STCI and MMTC each called for tenders for 10,000 tons imports of 25% broken white rice for delivery between October 15 – November 15, 2014 at the Food Corporation of India (FCI) godowns in the North-Eastern state of Manipur and Mizoram.

While STCI received a bid of $750 per ton, MMTC received a bid of $867 per ton. Traders told local sources that the difference in bid amounts is due to logistical cost of transporting rice from Myanmar to the two states of Manipur and Mizoram.

The government of India has approved for importing 100,000 tons of rice for the catering to the public distribution (PDS) needs in the north-eastern states of Manipur and Mizoram and authorized STCI and MMTC to import 20,000 tons of rice each month over the next five-month period.

India, a net exporter of rice, had about 21.65 million tons (including a milled equivalent of about 6.65 million tons of paddy) in its central pool as of September 1, 2014. The stocks were about double the required buffer and strategic reserve norms of around 11.8 million tons for this time of the year, according to the FCI.

Despite having sufficient rice stocks, the Food Corporation of India (FCI) has decided to import rice due to likely transportation disruptions (to the two states) from the proposed railway conversion works on a 220-kilometer line between Assam and Tripura.

Ports gear up to handle surge in coal imports

India’s major ports are taking to dredging and procuringmore cranes to deal with a surge in imported coal. While Paradip Port plans to dredge two of its berths for handling bigger ships, Kandla Port has begun the process of procuring additional cranes.

The higher traffic is a result of the country’s fuel starved thermal power plants resorting to imports, as Coal India struggles to meet the demand. According to the Central Electricity Authority, 56 power plants in the country had critical (less than seven days) of coal stocks as on September 29.

Analysts estimate that coal and coking coal imports in August were 12 per cent higher than the same month last year at 9.41 million tonne. This is after a 3.87 per cent increase in imports during the first quarter of 2014-15 at 50.94 million tonne.

With import volumes increasing, importers have started using larger vessels to get a freight advantage.
Large vessels

“Importers are using 80,000 tonne gearless vessels instead of 60,000 tonne geared ones because of $1-2 per tonne advantage they get in the freight rate,” said a port official.

Gearless vessels depend on the equipment in ports to handle cargo while vessels with gears have cranes onboard. Paradip Port in Odisha can only handle such vessels at one berth.

An official at Paradip Port said that it is now in the process of dredging two more berths to have deeper channels for handling bigger ships. “The tenders are being placed to deepen the channel by December,” said the official.

Kandla Port, which registered over 17 per cent growth in coal handling in August, is in the process of procuring two floating cranes which will help unload cargo from the bigger vessels that cannot come very close to the port, said an official of the port.

At present, Kandla Port operates with two floating cranes. Moreover, two berths of Kandla Port — Tuna/Tekra — are being mechanised by the Adani Group and are expected to be operational by December.

However, evacuation of the imported coal from the ports is also proving to be a concern.

Due to lack of rake availability, the evacuation of coal from the Paradip Port is far from smooth, said an analyst with India Coal Market Watch.

There is still 2-3 million tonnes of coal at the port currently. “There are 400 pending indents with the Railways. Daily evacuation is 9-10 rakes while we would require 20-25 rakes a day,” said an official at the port.

Rake availability has actually declined for Paradip Port as it is only getting around 300 rakes a month at present while last year it was getting 600 rakes.

“Krishnapatnam Port pins hopes on coal imports for growth”

KRISHNAPATNAM (NELLORE): Krishnapatnam Port, the largest private port India’s east coast, expects nearly 50% growth in its revenues this fiscal thanks to spurt in import of coal for thermal power units as Supreme Court recently cancelled over 200 captive coal blocks.

The port near Nellore in Andhra Pradesh, owned by the CVR group, hopes to see coal imports crossing 30 million tons from 20 million tons last year, taking the overall cargo handling to 35 million tons from 24 million tons.

“The spurt in coal imports should help us post at least 50% increase in sales at around Rs 1,800 crore this fiscal from Rs 1,200 crore in year to March 2014,” said C. Sasidhar, managing director of Krishnapatnam Port Company Ltd (KPCL)

Dozens of power companies, both public and private, are currently building coal-fired electricity generating units in and around Krishnapatnam, involving at least 14,000MW of capacities, which propose importing at least 30% of their coal requirement.

He was talking to visiting journalists at the port late on Friday after flagging off container services of Shipping Corporation of India BSE -1.50 % to Myanmar.

During last fiscal, the port handled a total cargo of 24.37 million tons, which includes 21.12 million tons of imports. While coal imports stood at 19.75 million tons, fertilizer imports amounted to 1.37 million tons.

Spread over 6,500 acres, the port at present has an installed cargo handling capacity of 70 million tons of cargo handling capacity, Its newly built container terminal can handle 1.2 million tons capacity now, which is being proposed to be expanded to 6 million tons over next 5-6 years.

“We are looking at launching weekly liner service to Yangon port of Myanmar from Krishnapatnam and also introduce larger vessel with a capacity of 4,500 TEUs as against 1,200 TEUs now,” said Shipping Corporation’s director Captain S. Narula. “Within six months, the Corporation plans to introduce similar direct liner services to Vietnam from the east coast and later to Thailand. We see huge potential in Vietnam.”

India looking to revise coal imports

The Indian government is working on a possible upward revision of planned coal imports for 2014/15.The Coal and Power Ministries had started working on a new import plan midway through the current financial year to tide over a rising coal supply shortage and plug loopholes in imports, an official in the Coal Ministry said.

With half the number of thermal power plants across the country currently having less than one week’s requirement of coal stocks, the 94-million tonnes of imported coal planned earlier this year would not suffice to bridge the demand gap, the official said.

Moreover, in an error of judgment, the 94-million tonne imported coal projection had not taken into account demand for feedstock from the new thermal power plants that were scheduled to go on stream over the next 6 to 12 months, he added.

Apportioning some blame to electricity advisory and planning body, the Central Electricity Authority (CEA), the Coal Ministry noted that the latter had not factored in the additional coal requirement of new thermal power plants going in commercial production during the year, while forecasting total coal required from domestic mines and imports.

The Coal Ministry also sought involvement by the Power Ministry and CEA in the import planning process to ensure efficient demand projection and sourcing from Coal India Limited (CIL), contingency demand and imports to bridge the demand-supply gap.

Citing the loopholes in planning, the Ministry in a communication observed that of the 94-million tonnes of imports planned for the current year, as much as 40-million tonnes of coal would be required exclusively for thermal power plants constructed based on imported coal, thereby leaving just 54-million tonnes for domestic coal-based power plants, whereas the minimum shortage of coal for domestic coal-based power plants would be around 77-million tonnes in the current year. This excluded new thermal plants almost ready for production.

CIL has communicated to the Coal Ministry that it would be willing to take up imports of coal for supply to thermal power plants on a cost-plus basis once the final import target was revised, while power plants would have the option of direct import of the dry fuel.