Sunday, May 22, 2022

Imported coal prices set to rise 45-55% in Q1 FY23: ICRA

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  • Imported coal prices are expected to stay elevated throughout 2022-23
  • Non-regulated sectors, steel, cement and aluminium producers will encounter significant cost increases

New Delhi: Prices of imported coal are set to rise by 45-55 percent in the April-June 2022 quarter as markets face supply disruption following the Russia-Ukraine conflict, rating agency ICRA said in a report. This will severely impact domestic users of imported coal since, notwithstanding some moderation from the all-time highs of March 2022, coal prices are expected to stay elevated throughout 2022-23.

“As coal supplies remained tight, domestic spot e-auction premiums for auctions conducted by Coal India Limited reached all-time highs, climbing sharply to 270 percent in February 2022 as against 30 percent in February 2021. Domestic e-auction premiums reportedly increased further to 300 percent in March 2022,” said Jayanta Roy, Senior Vice-President, ICRA.

He added that within the regulated sector, imported coal-based and merchant power stations, which lack a long-term coal linkage, will absorb the maximum impact of this price rally and within the non-regulated sectors, steel, cement and aluminium producers will encounter significant cost increases. 

Imported coal: Supply disruptions caused due to Russia-Ukraine conflict

Russia is a key supplier of coal in the seaborne market, accounting for 17 percent and 10 percent of the international trade in thermal coal and coking coal, respectively. With SWIFT sanctions imposed on some Russian banks and concerns over counterparty credit risks, buyers are unable to trade with Russian coal suppliers. 

Moreover, a growing number of Western power utilities are also looking to voluntarily place an embargo on Russian coal supplies, which is leading to disruptions in the normal coal trade flows. On March 3, 2022, eight days into the Russia-Ukraine conflict, seaborne thermal coal prices jumped to an all-time high of $430 per tonne as Western countries started to impose sanctions on Russia. 

India’s coal demand to cross 1-BT mark in 2021-22

India’s coal demand has rebounded sharply in the current fiscal following a 5.2 percent year-on-year contraction in 2020-21. It is likely to cross the landmark 1-billion-tonne mark for the first time in 2021-22, representing a healthy 12-13 percent growth over the previous fiscal.

With a gradual recovery in economic activity, domestic coal demand is expected to grow by a modest 5-6 percent in 2022-23. However, coal imports are estimated to contract by 14 percent in 2021-22 as users look to replace costlier imported coal with cheaper domestic coal, to the extent possible. 

“We expect Coal India to close FY2022 with an annual production of 627 MT, much lower than the targeted 670 MT. Given the prevailing low coal stocks, and the steadily rising coal demand, CIL would need to increase production significantly to 700 MT in FY2023 to avert a domestic coal shortage next fiscal,” Roy said. 

In ICRA’s baseline scenario, average international thermal coal prices in 2022-23 is expected to remain higher by 35 percent over 2021-22, which would lead to elevated cost pressures for coal consumers in the coming fiscal, said the report.

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