In our view, recent policy initiatives by the Indian Government are helping the country achieve 'Power for All'.
Investments are also being made in the rail network that should ease the logistics problem for coal supply, which will enable the power plants to have consistent supply of coal. Even with better supply conditions, we do not think that this will result in lower imports. For this to happen, domestic production needs to rise faster than demand, which is unlikely, given historical supply growth. The forecast increase in power demand in the country means that thermal coal imports into India will continue at increasing rates for many years to come.
Power demand in India is expected to increase in the coming years. The population of India is expected to grow from 1.3 bn in 2018 to 1.4 bn in 2023. Also, industrial production is expected to grow at a CAGR of 5.8% and GDP at a CAGR of 6.7% during the same period. Consequently, we expect power generation to grow at a CAGR of 6.2% out to 2023 to meet growing needs.
The Indian Government is focusing on making power available for all and the government has now received a mandate for a second term, therefore, we expect this agenda to continue. To achieve this target, the government previously implemented the ‘SAUBHGYA’ scheme that aimed to achieve 100% electrification. In April 2018, it was announced that 100% of villages had power access, however, there remain a significant number of households that do not have access. This is because, under the scheme, a village is deemed to be electrified once >10% of the village was using electricity. Consequently, we expect power demand to rise significantly.
Despite a rising share of renewables, coal demand will rise
India has set an ambitious target of achieving 175 GW of renewable installation by the year 2022. This comprises of 100 GW of solar and 75 GW of wind capacity. This ambitious target ignores the present situation of the country. In India, the grid infrastructure is still evolving and the existing network is not at a stage to accommodate the upcoming capacity infusion from renewables. Along with this, there is a problem of power storage also associated with renewables because power availability is not uniform. Such problems remain unaddressed at present. Consequently, we expect India to achieve only 125 GW of renewables by 2022.
CRU expects the share of renewables to increase from 6% in 2018 to 10% in 2023. However, this does not imply a decrease in thermal coal demand or lower coal plant capacity. In fact, about 77 coal power plants are under construction, including both greenfield & brownfield plants. Approximately 74% of power comes from coal at present, therefore, the transition to renewables will lead to a decrease in coal’s share of the mix, but not lower consumption. We expect coal demand to increase by CAGR of 4.4% out to 2023.
Imports will increase in upcoming years
From the perspective of coal miners, there are not many positives to cling onto in 2019, but the Indian market is one example. Power generation is rising well and, last year, several bottlenecks prevented power plants in India having good access to coal. Due to the lack of
logistical infrastructure, domestic coal supply was prioritised to state-owned public sector units. As a result, captive power plants were deprived of coal and they suffered from critically low stocks. On average, plants held just 9 days’ worth of stock in 2018. As a result of the domestic supply constraints, thermal coal imports increased by 11% y/y and buyers were willing to pay high prices.
In 2019, Indian import volumes have continued to increase, albeit at a slower rate of 5% y/y. Coal of India (CIL), which accounts for the majority of Indian coal production, has been negatively impacted by monsoons and other production issues that have meant its coal
supply has actually fallen in April and May y/y. This bodes well for future import demand.
Another positive area of the market is South East Asia. Most notably, Pakistani and Vietnamese imports are rising strongly as coal-fired power generation is increasing quickly and domestic supply in both countries is struggling to grow. Moreover, prices on the seaborne
market are now low, therefore consumers are taking a lot of additional tonnes.
CRU provides more detailed analysis of the market implications of these events, as well as forecasts for metallurgical coal and thermal coal mining costs, projects, supply, demand and prices, in the following services:
- Mining Cost Services - Asset by asset cost benchmarking and evaluation tool
- Long Term Market Outlooks - Outlook to 2035 for supply, demand, projects and prices
- Market Outlooks - 5 year forecasts for supply, demand, trade and prices
- Steelmaking Raw Materials Monitor - weekly price assessments and market analysis for metallurgical coal, metallurgical coke and iron ore
If you would like to speak to CRU's team in your region about how our services can support you and your colleagues in your market activity, please let us know and we will be delighted to discuss further with you.
