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Coal sector shortfalls to continue

World Coal,

According to Business Monitor International (BMI), the recently ended strike by Coal India Ltd’s workers signals more pain ahead for the country’s troubled coal sector. The strike of coal miners in India, the largest industrial strike since the railway workers strike in 1974, shut down more than half of Coal India’s coal production and shipments. The strike, organised by the company’s five main unions, shows the unions’ more forceful stance against the Indian government’s proposed privatisation of the coal industry. In October 2014, the Indian government signed an executive order, which allows Prime Minister Modhi’s administration to end a government monopoly on the mining and selling of coal. While analysts consider the move crucial to boosting coal output, unions have said it may lead to job losses.

Although the most recent strike ended on 8 January, the union’s forceful opposition towards the Indian governments’ coal policy will have significant consequences for the country’s power supply. India relies heavily on coal to produce power for the country’s industrial and public sector. Coal will account for on average approximately 65% of the nation’s total electricity generation over 2015 – 2018. The country’s coal consumption is expected to grow from 846 million t in 2015, to 993 million t in 2018.

However, the country’s intermittent power supply already suffers from regular blackouts, as Coal India, which accounts for 80% of India’s power supply, has failed to meet production targets. Furthermore, of the hundred power plants that run on domestic coal, forty two have supplies of less than seven days, and twenty of these have less than four days of stock. Coal shortages could therefore be exacerbated over the coming quarters, if the government fails to find a durable solution.

BMI expects problems to continue within the country’s domestic coal sector, due to persisting labour unrest and Coal India’s inability to meet industrial demand. Insufficient coal stocks will hamper production growth and discourage expansion plans for steel companies operating within the sector. For example, in early December 2014, India’s third largest steelmaker, JSW, announced that it was putting on hold the construction of a planned US$5.7 billion steel plant in eastern India due to uncertainty surrounding securing crucial raw materials including ore and coal.

BMI expects India’s domestic coal mining difficulties to boost the country’s coal imports over the coming years. Strong growth in Indian imports will be important helping thermal coal prices find a bottom in 2015. This is particularly the case given that new coal regulations in China will delay the ramp up in coal imports into the country. Business Monitor forecasts thermal coal prices to average US$64/t and US$68/t in 2015 and 2016 respectively. This compared to an average of US$70/t in 2014.

Adapted from a report by Emma McAleavey
Source: BMI                       

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