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Five reasons India’s coal imports will continue to grow

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World Coal,

Indian imports of thermal coal could set a record this year of between 145 – 152 million t, according to market sources. Here’s five reasons why:

1. Let’s talk about the weather

The weather has been causing the most immediate problems for India’s power market: in early June, a record heatwave drove demand for power to record levels, while an as-yet lackluster monsoon has hit hydropower generation, forcing utilities to rely on coal-fired plants. Rolling blackouts across swathes of the north of the country were the result last month – a situation the government of Narendra Modi will be keen to avoid again (see reason five, below).

2. Low coal stockpiles

Adding to the pressure on coal power generators is the record-low coal stockpiles at power plants. At the end of June, these stood at 12.4 million t compared to 20.9 million t at the same time in 2013. Forty-two power plants had less than seven days’ worth of supplies – a level considered critical.

3. Coal India continues to struggle

Amid the increasing demand for coal, India’s domestic supply continues to struggle as logistical bottlenecks and delays in new-mine permitting clog the system. Efforts to solve these issues will take several years to have an impact, according to Jeffrey Landsberg, managing director at Commodore Research & Consultancy, leaving India’s power plants dependent on imports in the meantime.

4. A Chinese bear makes for an Indian bull

Prices for thermal coal on the international markets have been falling steadily with Newcastle prices dropping to US$70.34 per ton in the week ending 27 June – the lowest level since September 2009 – on the back of low Chinese demand. Combine this with a strengthening rupee – its up 3% so far this year – and coal imports are attractive to Indian buyers.

"We also feel that imports would continue to rise in the immediate short term because of prevailing attractive prices and possibility of further softness in international prices, mainly due to the China factor and comparatively low demand from European utilities," said Viresh Oberoi, CEO of market-operator, mjunction.

5. The Modi factor

And finally, the desire of the new government to avoid the power blackouts that beset India under the previous government should not be underestimated: “The new Indian government is very, very determined to stop large blackouts and that’s the reason we will see electricity demand continuing to rise,” noted Landsberg. And for now, that means India’s coal imports are likely to continue to rise.

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