Will South Africa benefit from India’s increasing coal output?

It’s easy to dismiss the Indian government’s assertion that the country will be able to more than double coal production in the next five years.

But that doesn’t answer the question of how close they will get – and how it will affect coal miners such as South Africa.

Coal Secretary Anil Swarup told the Coaltrans India conference in New Delhi that India would produce 1.5 billion t of coal by the end of this decade.

Swarup, the top coal bureaucrat, presented these numbers in a relaxed and confident manner, a stark contrast to previous government presentations at Coaltrans events, which have generally been cautious and fraught with defensive justifications of past disappointments.

He still has the problem that nobody believes that state-controlled behemoth Coal India would be able to double its output to 1 billion t a year within five years.

But this new level of confidence made the Coaltrans India unique among coal conferences in recent years.

It was the first such event boasting what could be called a mood of optimism, as opposed to the doom and gloom that has been pervasive at prior events, as coal miners struggled with the 60% fall in prices since the post-2008 recession peak in early 2011.

But the emerging consensus among industry players is that the balance of risks has shifted in India, and that the pattern of ambitious targets being missed by wide margins may be replaced with results that come closer to actually meeting targets.

So, how close can Coal India come to the magic 1 billion t mark?

The answer is that even if all the necessary infrastructure is approved, it will take several years for it to be built and ramped up to full capacity.

Coal India and its subsidiaries said on February 20 that they planned capital expenditure of around 60 billion rupees (about R11 billion) in the 2015-2016 fiscal year.

Add to this money committed to building one of the planned rail corridors, and it’s clear that there is action to back the ambitious targets the government has set.

This means that it’s possible that by 2018 or 2019, Coal India may well be able to boost output by another 200-300 million t.

While this is short of the target, it would still be a substantial boost to current output of around 500 million tonnes.

So, where does this leave coal miners in Australia, Indonesia and South Africa that are pinning their hopes on India to replace China as their growth market?

Probably not as badly off as they may fear.

The additional Indian output, assuming it is delivered, will not be coming in meaningful volumes until at least 2017.

It’s likely that for the next two to three years, Indian coal demand growth will exceed the expansion in domestic output, meaning a growing gap that imports can step into.

After that, Indian domestic output may grow at a faster pace than overall demand, meaning slower growth for imports. However, the idea that India can do without coal imports altogether is likely to remain fanciful for at least another decade.

India is the world’s second-largest coal importer, and if imports rise in 2015 by the same 19 % that they did in 2014, it’s likely that the South Asian nation will start to close in on top importer China.

Overall, the picture that emerges is that India is taking concrete action to increase its coal output, but the government’s targets are still too heroic.

This means imports have scope to grow at a decent clip for the next few years, and then growth may taper as domestic capacity comes on stream.

Edited from source by Joseph Green

Source: City Press

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