Outlook for Indian coal demand remains strong

Supported by government reforms and strong growth in output from Coal India (CIL), Indian coal production will rise to 1.01 billion t in 2020, according to a research note from BMI Research, from 703.72 million t in 2015.

Strong growth but missing coal production target

Despite this, coal production will not meet the government target of 1.5 billion t by 2020 as challenges remain including the threat of strikes from coal unions and low coal prices, which will limit the attractiveness of the sector for international investors despite the government’s determination to open up the industry to private companies with the passage of the Coal Mines (Special Provisions) Bill.

Slowness to grant environmental approvals for new mines, a lack of capacity on Indian railways and challenges to financing the purchase of new freight trains by state-owned India Railway’s could also hamper production growth.

Coal imports to continue to play a key role

As a result, the country will continue to rely on imports to cover coal demand: the structural deficit totaled 187 million t in 2015, according to BMI Research. While this is likely to fall as domestic production ramps up, coal imports will remain a key supply line for coastal power plants given India’s transport infrastructure issues and the low price of coal on international markets.

This will see Indian companies continue to look abroad as they seek to plug gaps in production. Although the financial viability of Adani and GVK Hancock’s super-sized projects in Queensland’s Galilee Basin, Australia, remains in doubt, projects in southern Africa continue to receive interest from Indian firms.

Indian companies target southern African coal

“South Africa has been cited by Indian mining and industrial companies as the obvious supplier since Indonesia’s coal is of poor quality and extraction costs in Australia are high,” BMI Reseach said. “Jindal and Atha Group have already invested in South African coal, while companies including Dalmia Cement are considering entering the sector.”

Mozambique is also garnering some interest with India’s International Coal Ventures – a consortium of state-owned Indian companies – buying Rio Tinto’s Mozambique assets in July 2014 and joining CIL and Jindal in investing in the southern African country.

Despite the challenges, then, the future of coal in India appears positive. “We expect coal to retain its primacy in India over the coming years and energy poverty remains a key concern,” concluded BMi Research. “The fuel will remain the only realistic option for providing cheap and abundant energy for the local population […] to 2024.”

Edited by Jonathan Rowland.

Read the article online at: https://www.worldcoal.com/special-reports/08032016/outlook-for-indian-coal-demand-remains-strong-2016-364/