Coal Sourcing Options for India


Slowdown in Indian Industrial sector is expected to remain in the short term. Though impetus by the new governments initiatives such as Coal Auction, veering from inverted duty structure have shown signs of replenishment of manufacturing sector. But still at the ground level the numbers are showing weakness as IIP for December 2014 slipped to 1.7% which is less than 50% compared to previous month’s growth of 3.9%.Recently released Economic Survey 2014-2015 just before the budget showed double digit growth trajectory i.e. 8–10% GDP in coming years, to achieve it Industrial sector must also provide its share.

Foundation of any economy is the availability low cost energy source. Fulfilling the ever growing energy demand where coal plays a major role be it Power, Steel or Cement sector pose a big challenge in the context of Indian economy. Coal demand is projected to be close to 1.5bt (billion tonnes) by 2020. To supply this demand by domestic coal, Indian government has targeted to ramp up the production of CIL twice to 1bt from current level of close to 500mt.

Whether Domestic Coal will suffice???

This is a big question seeing the current condition of coal supplies:-

  • Lack of major suppliers other than CIL (contributes 70%), SCCL.
  • CIL not able to fulfil (approximately 10-15% or more) of its FSAs on a continuous basis.
  • April-Feb production of CIL is close to 440mt which is still short of its target of 500mt (approx.) and most likely to fall short of it in FY (2014-15) given only one month is left.
  • Steel industries given the slow demand may not be much affected, but eyeing the Indian steel Vision of 300mt by 2025 from current levels of 100mt they may face acute shortage of fuel.
  • Low calorific value of Domestic coal (3500-4500 kCal/kg).
  • Most of the coal mining areas are announced as No-go areas by Ministry of Environment & Forest.
  • Land Acquisition and R&R issues.


International Suppliers

Looking at the trends in the gap of demand and supply of coal i.e.16% (approx..) this year and India falling short of its target on yearly basis due to which coal imports in India have increased to 190mt (approx.) in current year from 70mt in 2010-11, this 2.7 times growth in imports makes India a potential market for coal suppliers across the world.


Given the decline in appetite of china from imported coal by 10.9% to 291.2mt ( and drop in overall world coal prices gives India an opportunity either to

  • To explore cheaper options of coal imports with long term contracts as prices are less (50-70$/t) due to decrease in demand globally.
  • Or by acquiring Coal Assets in foreign land as they are available at lower valuations currently.


Improving macroeconomic conditions in India have encouraged many coal suppliers across the world to enter Indian coal market such as Chile, Australia, America, South Africa and Indonesia.

Indonesia has been the major coal exporter to India with approx. 75% of total coal imports in India. Imports of steam coal from Indonesia have been growing at the rate of 10% and 34% respectively in last two FYs. Given the high quality of coal (5500-6200Kcal/kg of GCV on an average basis) and short voyage it is the better option compared to other countries. However, the Indonesian legal framework is not very conducive for the industrial environment. Besides, the Government of Indonesia has frequently changed the country’s mining laws, giving rise to unpredictability in the sector. A recent rumour of rise in the export duty on coal worsens the situation.

Australia emerging as the new player has increased imports to almost 4.5-5mt in 2014 with increase in imports close to 190% compared to 2013.But due to lack of pass through of coast in power sector and higher FOB charges it might not be a long term option, also the unpredictable weather conditions, strict environmental and labour laws have been impediments of imports from Australia. No doubt Australia has been consistent in its coal quality but still the rise in cost will lessen its competitive advantage compared to S.A. and Indonesia.

Imports from South Africa have also been on rise from about 25mt of coal to India in 2014 compared to 22.4mt (approx.) in 2013, growth of 10% from previous year. Transportation infrastructure be it roads or ports has been an issue in S.A. but still due to its proximity to India it is considered a more feasible option in short run.

Chile has also been a new player given reduced freight rates and coal prices in international market ($60-80/t).1-2mt of Chilean coal imported to India in last 2 years with quality of coal similar to Indian coal (average GCV ~4100Kcal/kg) it is a good option. But fluctuations in exchange rate, voyage (30-35 days) and large freight charges are concerns.

Northern Appalachian coal of America has also been imported about 2mt in 2014 with Xcoal Energy and resources being major exporter. Ernie Thrasher in 14th Coaltrans in India said that they are targeting to increase the export to India by 30-40% approximately in coming years given the good quality (4500-5000Kcal/kg) of coal and large capsize vessels. Voyage (>40days) and high CFR prices are issues to ponder upon.

Mozambique and Columbia are other options where large reserves of metallurgical coal are found. Indian companies like Jindal Steel & Power Ltd. and TATA are in the process of acquiring coal assets while Coal Videsh Africa has already acquired two blocks in the northwestern region of Tete province which has more than 2bt of coal reserves.

Tata Power has signed up with Russian coal giant Siberian Coal Energy Co. Lt. (SUEK) to  to cooperate in developing energy sector opportunities.

Way Forward

As Indian cement industries 30% coal demand is met by domestic coal due to preference given to power sector they are highly dependent on coal from these international sources.As the demand for coal is to be increased by manifolds in next 10 years India needs to have a mix strategy to supply this demand both from domestic and imported coal. Though Railway minister Suresh Prabhu said in 14th Coaltrans Conference that government will aim to reduce imported coal from current levels, it seems quite a distant dream given the supply bottlenecks and production capacity of domestic coal industry. Moreover Australia seems to be the major importer for metallurgical coal and Indonesia for the steam coal in coming future. Private companies and PSU’s should take advantage of the diminishing coal demand and lower assets values to have a long term coal supply from external sources.
























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