Domestic coal demand may be subdued in Q2 on lower demand: Report

Demand for domestic coal is likely to be subdued in the second quarter of the current financial year, due to lower demand from end-user industries amid the COVID-19 pandemic along with high inventory at power stations, according to a report by India Ratings.

The rating agency said domestic coal production remained subdued for the third consecutive month in June 2020 year-on-year as well as month-on-month due to low power demand and higher inventory at power stations.

Thus, the coal offtake reduced in June 2020 year-on-year but improved month-on-month with the gradual relaxation in lockdown norms, the agency said.

"Despite gradual relaxation in lockdown norms, demand over the second quarter of FY21 shall be further dampened by the onset of the monsoon season. Overall, domestic coal imports are also likely to be lower in Q2 FY21 year-on-year," it said.

 

According to IndRa, domestic coal imports are likely to have been lower in July 2020 due to the low domestic demand from end-user industries amid the COVID-19 outbreak.

Also, the government has mandated Coal India to replace at least 100 million tonnes (MT) of avoidable imports with domestic coal in 2020-21, to reduce imports.

"The share of imports in the total domestic consumption reduced to 22 per cent in June 2020 from 28 per cent in FY20. While the non-coking coal imports reduced 34 per cent y-o-y, coking coal imports declined 41 per cent y-o-y," it said.

The agency, however, said the commercial coal mining and the associated reforms announced by the government will help in shaping the coal sector towards a more deregulated and competitive scenario in the long run.

"However, resistance by some states over environmental concerns for some mines on offer is likely to stall the auction of such blocks. Furthermore, a global shift towards greener fuels and simultaneous withdrawal from coal-based energy may be a key challenge to participation of industry players," it added.