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The tiger in the room

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World Coal,

Alex Tonks, CRU.

The underlying import drivers for India are of such strength that India will become the largest seaborne thermal coal market in the world in 2015. Electricity shortages in India are one of the biggest constraints on the country and electrification is a key objective of the new Modi government.

The aggressive targets that the government has set in this area mean that Indian electricity generation is expected to grow at one of the strongest rates of any country in the world - indeed, analysis in CRU's latest Thermal Coal Market Outlook shows a staggering growth rate for electricity production of 46.8% between 2014 and 2019.

Demand growth potential in India remains huge due to a combination of a growing population, wealth and electricity share within primary energy, as well as unmet demand. The majority of this growth will come from coal-fired power plants, which will contribute around 80% of all new generation, despite delays in the construction of the Ultra Mega Power Plant (UMPP) projects.

Coal will remain India's dominant fuel source, with imports required to meet demand

CRU assesses that coal will continue to play a dominant role in India's energy mix, despite the nuclear, hydro and renewable pushes taking place. This is because of coal's ability to keep up with the surging demand needs of the country, which has seen it gain market share to date and will see it hold on to that share moving forwards.

On the domestic front, a number of years of less-than-spectacular production growth has failed to keep up with power consumption growth, and, in turn, this has caused a significant increase in and reliance on imported thermal coal.

While the Modi government has stepped up plans to increase domestic coal production and power generation – the reallocation of domestic coal blocks, interaction with labour unions and the approval of forest clearances are all signs the government is willing to push ahead with domestic output growth – unless there are seismic changes in Indian policy and red and green tape, CRU is not as optimistic as the government when it comes to domestic coal production targets. In conjunction with research conducted by CRU's Mumbai office, we estimate Indian domestic coal output to be 599.0 million t in 2015, with a CAGR of 4.8% between 2013 and 2019.

Improved Chinese domestic coal flows and regulatory measures to reduce seaborne imports into China

The combination of improved domestic coal flows and regulations, such as taxes on seaborne coal – e.g. the January 2015 imposition on coal trace elements and the 6% import tax on seaborne imports (excluding from Indonesia) – has seen seaborne thermal coal imports into China fall y/y.

Chinese seaborne bituminous coal imports for January – April 2015 totalled 28.9 million t - down 44.5% y/y. Forecasts in CRU's Thermal Coal Market Outlook shows them remaining under 100 million tpa through the next five years, declining each year until a slight uptick in 2019. Meanwhile, we forecast Indian imports to rise each year in this period, from around 200 milion t this year to over 300 million t in 2019.

The seaborne thermal coal market is undergoing substantial change, with several key factors influencing market fundamentals within major producing and consuming nations. A comprehensive understanding of these variables is essential for participants in the seaborne market to adapt and plan their strategic operations accordingly.

For more information on CRU’s suite of coal strategic forecasting and cost analysis services, or to speak to CRU’s analysts about our market views, please contact Sameer Virani.

Written by Alex Tonks. Edited by .

About the author: Alex Tonks in Managing Consultant at CRU and established its office in Sydney with his role focusing on developing CRU’s thermal coal market offerings.

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