In waiting for the right price, India now faces a coal crisis

India's coal stocks have hit dangerously low levels, and alarm bells are going off in the country's power sector.

The country's thermal coal demand is re-emerging as it picks itself up from pandemic-related demand destruction in the first half of 2021. Power demand is on the rise as country hits the road to economic recovery following a surge in coronavirus early this year.

India's average power demand increased 23 GW on year to 186 GW between Aug. 1-23. S&P Global Platts Analytics expects its average power demand from October to December to be at 167 GW, with coal-powered generation at 126 GW—about 12 GW higher year on year.

Facing the hottest coal market on record, Indian buyers avoided importing it and relied on domestic stocks to such an extent that the domestic stocks have now fallen to the lowest levels seen in over three years.

The FOB price of 4,200 kcal/kg GAR coal from Indonesia rose 125.34% from $44.4/mt on Jan. 1 to touch a record-high of $100.05/mt on Sept. 29, Platts data showed. The FOB price of 3,800 kcal/kg GAR coal from Indonesia rose 127.27% from $33/mt in Jan. 4 to $75/mt on Sept. 29.

India's total coal stock stood at 37.41 million mt at the start of 2021, according to the country's Central Electricity Authority. This has dropped to 8.317million mt as of Sept. 27—sufficient only for five days of coal burn.

CEA data as on Sept. 27 also showed that 101 coal-fired plants have stockpiles worth less than eight days of coal burn, with as many as 89 plants left with four or lesser days of coal burn. The capacity of these 101 plants amounts to 125.53 GW which is 76% of the total capacity of 167.586 GW.

Market observers said India waited for too long to start restocking, thinking that prices would soon correct. They now find themselves blindsided by both high prices and lack of supply.

India's federal power ministry in a letter dated Aug. 30 directed thermal power plants to enhance imports for blending purposes.

An Indonesia-based trader said that the directions of the Indian government does not push them to stick to power purchase agreements or, PPAs but can also opt for merchant agreements.

"However, there is volatility in power per unit rate on the exchange where it is moving from 7-8 rupees to 3.35 on short notice. We have to see how industrial demand from India holds up and how much are industries able to pass on the costs," the trader said.

Supply constraints adding to India's woes. Indonesian coal supply remains limited following heavy rains that dampened production. Some with some mines declaring force majeure and output falling by 10%-40% in other mines, sources said.

India imports a bulk of its requirements from Indonesia, Australia and South Africa, besides Colombia, Russia, Kazakistan and Mozambique.

India's total coal imports jumped 8.37% on year between January to June, according to data from Iman Resources.

Imports from Indonesia rose 1.15% on year during January to June to touch 42.9 million mt. Imports from Australia stood at 12.32 million mt, and 7.84 million mt from the US.

An Indonesian miner said that even though there were inquiries for low calorific value coal for September, their stocks were already sold out.

Meanwhile, state-owned Coal India has picked up production towards the end of August, coal ministry said. But sources said there were bottlenecks in transporting the coal to power plants.

Coal India produced 166.6 million mt of coal over April-July, up 5% year on year. In July alone, its output was up 14% year on year at 42.6 million mt.

Market participants are now waiting to see whether India's power demand will hold up and how the power companies will manage to pass on the costs of securing fuel. Any progress on domestic production is also being closely watched.