Indian buyers pay steep prices for seaborne thermal coal as stocks fall, demand rises

Indian thermal coal buyers have started to pay very high prices to import the fuel in a shift from the traditional pattern of low-cost buying, as domestic stocks border on critical levels amid a surge in summer power demand, sources told S&P Global Commodity Insights April 28.

Several trades to India for 4,200 kcal/kg GAR coal of Indonesian origin were heard concluded in the week ending April 29 at $95-$98/mt FOB for Panamax and Capesize vessels.

Stockpiles at utilities stood at 21.445 million mt as of April 26, sufficient for a little over seven days of coal burn, according to data from Central Electricity Authority, leaving buyers with little option but to pay such high prices.

"I don't think Indians have paid these levels before. This is historically high," a Singapore-based trader said. The average price for Indonesian thermal coal paid by Indian buyers in financial year 2021 [April-March] was $49.02, according to government data.

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The development comes amid a global supply shortage as Europe decided to cut itself off from Russian supplies due to its invasion of Ukraine. European buyers have been pursuing Asian cargoes to fill the void created by the absence of Russian tonnages.

"Indian import demand is strong and they are filling the void left by China but it is only a temporary thing because of how high Indian demand is," an Indonesia-based trader said.

Stating that India was never a price driver on a sustainable basis, the trader added that "when monsoon starts power demand will go down and it will again depend on how China behaves in the market."

An Indian trader said the rangebound Capesize freight rates might be the factor that is making Indonesian coal imports viable for Indian traders.

"I'm buying coal from Indonesia even at current prices because supply goes to primarily non-power sectors in Southern India. While the effort will be to not pass on the cost in the interim, it cannot be guaranteed given the price levels," an India-based trader said.

Domestic supply conditions

New Delhi had on April 13 directed all utilities to speed up imports to avert a supply crunch.

"Imported coal is coming for NTPC, state-run power plants and general industrial purposes. The captive power plants and industry have been getting little or no coal from Coal India Ltd., and even contracted supply through railways have been curtailed or stopped in the name of prioritizing the power sector," said Rajiv Agarwal, secretary general of the Indian Captive Power Producers' Association.

"Many [industrial] units on the verge of closure are buying coal at unviable prices because if production stops, it may lead to industrial unrest as the markets will be overtaken by imported goods in that case."

Experts pointed out that elevated electricity tariffs at the spot power markets in the country may also have a bearing on Indian buyers agreeing to procure costly coal. Some power plants are being able to sell electricity at higher rates, with the average price in the spot power markets being Rupee 11.85/unit over April 20-28. The average power price in the same exchange in financial year 2021-22 was Rupee 4.39/unit.

Amid dwindling coal stocks, the maximum electricity demand met in the country was 200.65 GW on April 27, 15.66% higher than on the same day in 2021. The electricity supply shortage recorded on April 27 was 198.51 million units, compared with the shortage of 7.91 million units recorded the same day in 2021.

S&P Global reported April 25 that pithead stocks at Coal India mines were seen to be just over 60 million mt on April 1, 39.39% lower on the year, as coal supply did not increase commensurately with the rise in power demand in the country.

Globally, thermal coal prices have remained bullish since 2021 when the price of Indonesian 4,200 kcal/kg GAR coal hit an all-time high of $158/mt FOB Oct. 19, 2021, according to data from S&P Global. Prices then declined to $67/mt FOB Dec. 31, 2021 before rising again to $89.95/mt FOB April 28.

Thermal coal imports by power utilities in India fell 43% on the year to 24.16 million mt during April 2021-February 2022, according to the latest available data from CEA.