Domestic Coal Miners Stare At Subdued Demand In Medium To Long Term

The growing parity between renewable and conventional energy tariffs have led to a disruption in the domestic coal demand supply balance. Domestic coal demand is expected to grow at a CAGR of around 3 per cent - 4 per cent between FY2018 and FY2022, as against 5.6 per cent registered between FY2013 and FY2017, according to ICRA.

Growth in the domestic coal demand is expected to slowdown in the country on the back of the Government’s large renewable energy (RE) capacity addition plans, according to ICRA.

As per the latest report, the capital cost of setting up Renewable capacity in the country has steadily declined with the tariffs of Renewable energy coming at par with the conventional sources. The latest tariff of Rs 2.44/unit at the Bhadla solar park in Rajasthan is the witness to the same.

According to the report the growing parity between conventional and RE tariffs, coupled with the current thermal overcapacity, will lead to a perceptible slowdown in fresh investments in setting up coal-based generation capacities in the next five years. This is likely to usher in a prolonged period of subdued demand of thermal coal for domestic miners.

Reflecting the trend, Coal India is expected to witness a derailment in its targets, “In our base case scenario of RE capacity reaching 125 GW in FY2022, we expect domestic coal demand to register a modest compounded annual growth rate of around 3.5 per cent between FY2018 and FY2022, as against 5.6 per cent registered between FY2013 and FY2017. Reflecting the above trend, Coal India’s ambitious coal production target of 1 billion tonne in FY2020 is likely to be missed by a wide margin”, says Jayanta Roy, Senior Vice-President, and Group Head - Corporate Sector Ratings, ICRA

The consultancy also expects the domestic coal production to grow by a higher compounded annual growth rate (CAGR) of around 5.5 per cent between FY2018 and FY2022, leading to a significant reduction in India’s coal imports.

“As per ICRA’s estimates, thermal coal imports are expected to contract to below 100 mt in FY2022, declining from 149 mt in FY2017. A gradual replacement of imported coal by domestic coal is expected to help domestic miners to an extent,” adds Roy. 

Global thermal coal prices have rallied by 36 per cent since May 2017, largely driven by a jump in imports by China. However, this might not be long-lasting in nature as they have resulted from unexpected seasonal and temporary aberrations.

Chinese domestic coal production had seen a setback during April to November of CY2016 on account of the Government’s direction of cutting down the number of working days in a mine from 330 to 276. However, the subsequent rollback of this directive in November 2016 has helped Chinese coal production steadily increase to earlier levels, which is expected to gradually reduce China’s thermal coal imports going forward.