Thermal coal prices fall, Indian power plants to see limited gains

Prices of Indonesian coal are down 14% while South African coal has declined 21% in the past six months

Thermal coal prices are on a downward spiral globally. Australian coal prices have fallen nearly 20 per cent in the past week, and 40 per cent from their peak of 2018, according to Reuters.
 
For domestic power producers, that import coal, this should come as good news. However, the extent of benefit will be limited as Indian firms import largely from Indonesia and South Africa.
 
“India does not import much from Australia. The decline is more volatile and is not meaningful for companies to strategise accordingly. There may be some cost advantage due to the fall, but it will not be significant,” said Sharad Mahendra, chief operating officer - energy business, JSW Energy.
 
Australian coal saw its steepest decline in prices in the past decade, hurt by a weak global growth and lower demand.
 

Coal prices have been falling since the spike in commodity prices in September-October last year.
 
“The recent fall in global coal prices — Indonesian coal is down 14 per cent while South African coal has declined 21 per cent in the past six months — is driven by various external factors. The change in investment sentiment in Japan to move away from coal projects, and the record increase in coal production in China and its plans to open new mines are impacting the demand for imported coal,” said Kameswara Rao, partner with PwC India.
 
JSW Energy, Tata Power and Adani Power use imported coal in their plants and stand to benefit from any downward movement in international coal prices.
 
Mahendra said while Australian coal prices are influenced by Japanese demand, China decides the fate of coal from geographies like Indonesia. “Prices for South African coal have seen a drop in the past six months, while Indonesian prices are determined more by the changes in global demand,” he said.
 
According to the Department of Commerce, coal imports from Australia stood at 3.33 million tonnes between April 2018 and January 2019, while imports from Indonesia and South Africa in the same period were at 81.95 million tonnes and 23.69 million tonnes, respectively.
India’s overall coal imports in the first 10 months of financial year 2018-19 (FY19) were 124.4 million tonnes, up 6.75 per cent on a year-on-year basis.
 
“As India’s coal imports are growing at a lower pace than before, global coal prices should continue to soften,” Rao said.
 
Officials from JSW Energy said the current fall in prices comes at a time when India will enter a lower power demand period because of monsoons, while peak summer supplies have been tied up.
 
“Contracts from June onwards will be entered into now, with power demand expected to be lower during monsoons in India, it may not lead to a rise in imports from where it currently is,” Mahendra added.
 
However, below-normal rains knocking off the hydro capacity may later have an opposite effect.