Monthly Coal News Commentary: March – April 2017
CIL hopes that with national electricity generation rising by 4.7 percent and prediction of early summer there would be higher coal demand. CIL was able to surpass its production target for the month of March 2017 achieving 104 percent at 66.07 MT. While offtake remained subdued to 52.30 MT for the month at 90 percent of the target. CIL missed the annual production target by 44.48 MT against a target of 598.61 MT and its off-take target by 55.45 MT for FY17. CIL said in FY17 as whole the average rake loading was 221.8/day compared to 212.8 rakes/day during FY16 registering a growth of 4.3 percent. Increase in absolute terms was 9 rakes/day for the year.
Growth of coal production during FY18 is expected to come down to two to 2.25 percent as compared to 9 percent registered in FY16. Production had been hampered to some extent due to problems in the Talcher mines due to R&R problems. In the last fiscal, CIL production at absolute terms was 536 MT. CIL has a stock 100 MT at pithead. Out of the 517 MT covered under the FSA with the power sector, 400 MT had been already validated and certified.
Replacing imports with high quality domestic coal is one of CILs strategies for finding new markets for its coal. Towards this end CIL is said to be in talks with power companies along the western and eastern coasts to discontinue the use of imported coal. Imported coal is in general more expensive than domestically produced coal.
At a time when almost everyone is worried about the future of coal, West Bengal is set to develop the country’s largest coal mine in Birbhum district, with the Centre allotting the development rights for the Deocha-Pachami coal block to the state under the government route. The block is estimated to have in-place reserves of about 2.1 BT. The block has four seams of coal ranging from 9 metres to 80 metres in thickness at depths ranging from 135 metres to 835 metres. The ash content of coal is estimated at 15-20%, which covers Grades A, B C, D and G. The block can be accessed through the Panagarh-Mourigram road and the nearest railway station is Mallarpur. The government West Bengal is said to be drawing up an Rs 120 billion plan to develop the block, which would create 100,000 jobs and usher in rapid economic development in the area. It is believed that the block is expected to produce coal worth Rs 2.10 trillion and attract total investments of Rs 220 billion. It is not clear what assumptions underpin these optimistic figures produced by the government. If demand for power is not growing and if peak demand generation does not require even half the available power generating capacity of over 300 GW and in addition if over 160 GW of renewable energy is likely to be dumped on a system that is struggling with over capacity who will invest in producing more coal?
CIL is expected to contribute to the government policy of reducing oil imports and reducing carbon emissions as it has come up with three coal bed methane and coal mine methane projects in Jharkhand and West Bengal in FY18. While one plant will be set up in Raniganj in West Bengal, two will be located in Jharia in Jharkhand. The government has said that domestic coal gas can be used as feedstock for producing urea and other chemicals that can help limit the country’s import bill by $10 billion in five years and reduce carbon emission. It is believed that India’s dependence on petroleum and natural gas can be brought down or done away with if the country manages to extract gas from coal. This is not necessarily a new idea. India’s early plan documents are full of arguments for producing urea and petrochemicals from coal to reduce oil imports. About a third of China’s coal goes for production of olefins and other petrochemicals. CIL is said to be actively looking to acquire coking coal assets in Australia. The rationale for foreign acquisitions is rising coking coal prices. CIL has also asked Mozambique if it can explore for coal in a new area, after surrendering two mining licenses in the African country. The decision makes commercial sense, for now.
The government is said to be planning amendments to rules for auctioning of coal mines through competitive bidding. The amendments are being considered for permitting sale of coal since there have been changes in the Coal Mines (Special Provisions) Act, 2015 and to align with the rules under this Act. It is said that the changes will accommodate the provisions of the proposed revised standard bidding document for UMPP and speed up coal delivery to UMPP plants.
The government has generated revenue of only ` 17.47 billion from the auction of 31 coal blocks. So far, 82 coal mines have been allocated by way of auction/allotment. Allocation of coal mines, including allocation during 2017-18, is an ongoing process. The sum generated from coal auction is a pittance compared to the projected notional revenue losses of over Rs 1 trillion in the so called coal scam papers!
Coal troubles seem to be following the Adani group into Australia. The company’s plan to supply lower quality coal with high ash content to non-premium markets like India from its $ 16.5 billion Carmichael coal mine in Queensland is being highlighted by some of the Australian opponents of the project. Adani Australia’s response is that in terms of quality of the coal it is almost 50 percent better than Indian coal. Final approvals from the Australian government could be by May or June, after which construction could begin. Adani Enterprises has maintained that the work on mine project would create 10,000 jobs for the state. The project involves dredging 1.1 million cubic metres of spoil near the iconic Great Barrier Reef Marine Park, which will then be disposed off on land. A new environmental campaign to stop the development of the Adani project is said to be materialising with the backing of former Australian Green party leader. Three-quarters of Australians oppose a plan for Adani to tap a $900 million government subsidy to help fund infrastructure connected to the mine, according to a poll. The campaign group brings together 13 conservation and community organizations representing 1.5 million Australians. Environmental opposition to the mine, which could begin production in 2020, has delayed the first phase of the project and prompted the company to cut underground capacity by 38 percent. A final investment decision is due to be made by Adani as early as May.
Rest of the World
China has apparently ordered its trading companies to return coking coal from North Korea. As per international news reports, North Korean cargo ships were heading back home to the port of Nampo. Coking coal is the country’s most important export product. At least ten North Korean ships recently arrived at a Chinese port after being stranded for the past three weeks following the top global coal consumer’s ban on imports of the fuel from its isolated neighbour. China has said it would ban coal shipments from North Korea, starting 19 February 2017, as part of its efforts to implement United Nations sanctions against Pyongyang.
Port disruptions in Indonesia and a cyclone hitting mines in Australia have tightened Asia’s coal markets in March, while demand in China and other key import markets remains strong, lifting prices. Prompt thermal coal cargo prices for export from Australia’s Newcastle port have risen by more than 11 percent since March 10, partly reversing a steep decline since last November. The price jump has been driven mainly by an Indonesian government graft probe at ports in its East Kalimantan province, which is one of the world’s most important thermal coal export hubs. The probes have disrupted ship loadings around the port of Samarinda, where 38 large dry-bulk ships are currently sitting idle to take on coal, according to shipping data. Most ships are unable to berth at the port and are being forced to take on coal via a small number of loading vessels. The delays come as demand remains strong in China, by far the world’s biggest coal consumer, after a crackdown on mining led to a 1.7 percent year-on-year drop in domestic output in the first two months of the year. Cyclone Debbie missed most of the region’s mines, but Glencore halted operations at its Collinsville and Newlands mines, and coal carriers stopped heading north for several days, delaying shipments. The higher Asian prices have led to a pickup in shipments from the US and Colombia as traders take advantage of cheap Atlantic basin coal, with prices there dipping due to an unusually mild start to the low demand spring season.
China’s top power groups are lobbying the local government in the western region of Ningxia to request their main thermal coal supplier to cut prices as they are bleeding cash due to surging coal costs and falling power prices. A glut of renewable and coal-fired power capacity in the Ningxia Autonomous Region has pushed down electricity prices, forcing utilities to sell their power at a discount after the government liberalized its power market. Prices in the region are the lowest in the country. Power company profitability is a major interest for the central government, which intervened last year to prevent a winter heating crisis when thermal coal prices soared to multi-year highs and forced mining cutbacks tightened supplies.
Eighteen districts in northern China’s heavily polluted Hebei province will ban the sale of coal by end-June ahead of a complete ban on residential coal use in October. Hebei, home to six of China’s 10 smoggiest cities in the first two months of the year, is on the frontline of China’s three-year war on pollution, and has targeted cutting coal consumption by 40 MT over 2013-2017. It has identified the use of coal by households and small businesses as one of its main targets this year as it battles to improve air quality. In a new action plan aimed at controlling coal consumption, the province said it would also strictly control the number of small businesses that burned coal directly, and crack down on the illegal production and sale of low-grade coals. The ban is likely to hurt local suppliers of low-grade coal but is not expected to have a wider market impact.
The US President’s decree to reverse former President Barack Obama’s 2016 ban on new federal coal leases, part of a wide-ranging executive order to sweep away green regulations have not had expected impact. A review of company filings showed that coal miners with the most to gain already have enough leases in hand to last well over a decade. That suggests miners could already ramp up production levels immediately if the market demanded more coal. Obama’s administration imposed the temporary ban on new federal coal leases in January 2016 as part of a broad environmental and economic review to ensure royalties from lease deals provide fair returns to taxpayers. Coal accounts for about a third of US electricity production, down from about half a decade ago. About 40 percent of all US coal comes from federal lands, mainly in the Powder River Basin in Wyoming and Montana.
Japanese trading company Mitsubishi Corp may sell stakes in Australia thermal coal mines as it presses on with a switch to core assets such as coking coal after slumping to its first-ever annual loss last year. Mitsubishi is looking to unload its 31.4 percent stake in the Clermont mine, and may also sell stake in the Hunter Valley operation. The firm plans to raise its stake in Canada’s Montney shale gas field, buying more shares from partner Japan Oil, Gas and Metals National Corp. Mitsubishi is considering whether or not to sell its 32.4 percent stake in Hunter Valley thermal coal mine in Australia after its partner Rio Tinto decided to sell its Australian coal assets to China’s Yancoal.
In the dusty scrub of the Thar desert, Pakistan has begun to dig up one of the world’s largest deposits of low-grade, brown, dirty coal to fuel new power stations that could revolutionize the country’s economy. The project is one of the most expensive among an array of ambitious energy developments that China is helping the country to build as part of a $55 billion economic partnership. A $3.5 billion joint venture between the neighbours will extract coal to generate 1.3 GW of electricity that will be sent across the country on a new $3 billion transmission network. Pakistan by contrast relies on coal for just 0.1 percent of its power. Pakistan’s coal reserves would give the nation a cheap domestic alternative to expensive oil and gas imports. In an effort to curb the import bill and meet demand for power, Pakistan plans to dig up some of the world’s biggest known deposits of lignite, a lower-grade brown coal. But first, it must clear 160 meters of sand to get to the coal.
CIL: Coal India Ltd, MT: Million Tonnes, BT: Billion Tonnes, FY: Financial Year, R&R: Resettlement & Rehabilitation, FSA: Fuel Supply Agreement, GW: Gigawatt, UMPP: Ultra Mega Power Project, US: United States