India's import-free goal for thermal coal hinges on fuel quality, economic growth

Energy security, self-reliance and aggrandizing India's coal sector are often alluded to as rationales for axing coal imports while ambitiously promoting exports. One would think this is possible, given how domestic production capabilities are roaring while a consistent economic growth of more than 7% provides a cushion for trade experiments.

Against this backdrop, a government announcement in 2023 that India will likely phase out coal imports by 2025-26 and a more recent statement saying India has the potential to export 15 million tons of coal to its neighboring countries, albeit without a timeline, did not quite stir a debate on possibilities.

But if thermal coal buyers, traders and producers are to be believed, getting rid of imported coal is nearly impossible for India when domestic fuel below a certain specification is mired by high ash content, with the majority in the range of 35%-45% compared to imported coal's 6%-20%. The scarcity of high calorific value coal adds to the domestic market's woes as the substitute of which can currently be found only in seaborne coal.

"While India is getting stronger in domestic production, coastal end-users often face shortages either due to local transportation hurdles or quality issues and that's where imported coal is required the most, which many times is also cost-effective," said Vuslat Bayoglu, managing director of South African coal miner Menar. "For India, it will always be a balance of domestic and seaborne coal -- 100% substitution seems unlikely."

In fact, India will have an even greater say in the international coal market as it is touted to remain a colossal buyer, Bayoglu said.

Grades, quality define imports

To put things in perspective, India's coal ministry categorizes domestically-produced coal in 17 grades, wherein Grade 1, or G1, to G8 comprises of coal with high calorific value 7,000 kcal/kg GAR to 4,900 kcal/kg GAR, in that top to bottom order. Interestingly, the top six grades (G1-G6) make up for less than 4% of India's total production, while G7-G8 accounts for less than 10%, according to the latest Coal Controller's Organisation report. The bulk of G1-G6 is imported by private power producers and non-regulated sectors like cement, sponge iron, bricks, paper and fertilizer, among others, as domestic production is negligible.

India's production is highest for G10-G14 coal, with calorific value between 4,300 kcal/kg GAR and 3,100 kcal/kg GAR, at around 600 MMt-650 MMt or approximately over 60% of the country's total domestic output.

Interestingly, G11 (4,000 kcal/kg-4,300 kcal/kg) is one of the most liquid grades in international waters and is imported in bulk by Indian users despite domestic production being the highest of all grades at around 250 MMt, CCO data shows. This is because imported material has a much lower ash content and is useful in blending with other grades to create a better-quality fuel, market participants said.

Grade-specific imported coal data is unavailable or is not published. However, India-based buyers said 70% out of the 100 MMt/y imports from Indonesia is between 3,400 kcal/kg GAR and 5,000 kcal/kg GAR. Indonesia accounts for more than 50% of India's coal imports.

India produced about 630 MMt of coal grades between 3,400 kcal/kg GAR and 5,000 kcal/kg GAR in 2022-23, out of its total 893 MMt output, CCO data showed, yet imports continued to swell, apart from G1-G6 grades that the country produces scarcely.

"Private power producers and non-power sectors can barely do with locally-produced coal without blending due to quality issues," an India-based trader and buyer of seaborne coal said. "Moreover, in a subdued global market, getting overseas coal mainly for coastal end-users is beneficial in many ways including costs, timely delivery as well as suitable blending options."

Since majority of the mines are in the eastern part of India, supply to coastal power plants and end-users in south and parts of west often remains a challenge. This happens despite availability of coal in the mines located in the east as requirement of railway rakes is nearly double of what has been traditionally available within the country.

Import-data transparency

Market observers believe that if Indian end-users share grade-wise data of imported coal every month, it will help in further identifying the gaps in domestic production volumes of specific-quality coal. Since several mines have been up for commercial auctions, the government can then try to root for research and development of coal grades that can be sourced domestically rather than importing.

"A consistent dialogue needs to happen with buyers of imported coal to ensure there is transparency in data as well as improvement in domestic coal quality," said an India-based thermal coal importer and generator. "A public-private partnership is all the more better when it comes to jointly working on reducing imports."

"Unless the stakeholders know which grades can be substituted, it is hard to curb imports," the coal importer added.

Government projections suggest India will require nearly 1.7 billion mt coal by 2030, an outlook reasonably churned on the back of resilient economic growth, rise in population resulting in exponential power demand as well as scaling up of infrastructure and industrial sectors.

"Despite the continuing growth in domestic coal production, we believe India's share in the thermal coal import market will maintain at 20% until 2030 even as import volumes plateau during this period," said Pat See Khoo, senior analyst at S&P Global Commodity Insights.

While India is not positioned geologically to produce very high-CV coal in huge volumes, it can make strides in the mid-CV fuel and improve on various specifications like ash and sulfur content, sources said, adding that usage of more domestic coal also needs to be incentivized -- especially when reliable supply is concerned -- by adding more railway rakes and lowering transportation costs.

Related news: India's CIL to increase coal supply to power plants through revised provision