Monthly Coal News Commentary: November – December 2017
India’s coal imports from North America are likely to surge as buyers are looking to boost purchases amid a domestic shortage of the fuel and a regional ban on petroleum coke, traders said. Shipping data showed that India’s coal imports from North America tripled to 2.1 mt in October from a year ago which is more than 70 percent of last month’s purchases. Other trading sources put this figure lower, at 1.47 mt. Coal imports for November 1-20 have reached 1.14 mt. Indian imports of North American coal, including supplies from Canada, stand at about 1.5 mt from November 1 to 20, data showed, already more than 70 percent of last month’s purchases. A ban on the use of petroleum coke, a dirtier but better-burning alternative to coal, is spurring expectations India will buy even more coal from the US in coming months. Cement companies account for nearly 75 percent of India’s annual petcoke demand of 27 mt according to trade data, and small industries such as lime manufacturers are also considering the use of US coal, which is almost as efficient as petcoke. The petcoke ban may deter the plan to cut India’s coal imports, which have risen for the first time in the past two months after falling in the past few years. Petcoke has been banned in some states around the Indian capital New Delhi which is battling heavy smog. Buyers are looking to boost purchases amid a domestic shortage of the fuel. But rising pollution in other Indian cities could lead to tougher restrictions such as a nationwide ban on use and imports of petcoke, with environmentalists requesting other states in the country to consider banning the use and import of the dirty fuel.
CIL is considering raising prices to meet the cost of the 20% wage hike. It last raised prices by 10% in May last year. The company said the wage bill puts an additional burden ₹ 58 billion annually, and another ₹ 95 billion needs to be spent on expansion. Further, the company has decided to sell more coal to power plants, which gets it lesser revenue than other buyers. Coal sold through spot e-auctions earns the highest while that sold to the non-power sectors earns 20% higher revenue. In the second quarter of the current financial, CIL’s profit halved to ₹ 3.68 against ₹ 6.12 billion a year ago. CIL the world’s largest coal miner, will pay its executives about ₹ 8 billion ($124.08 million) in salary rises retroactive from January this year. The pay increase, which was approved by the board, comes over a month after the company approved a rise in the salaries of its workers, costing ₹ 56 billion over five years. The company employs more than 300,000 people, about 18,000 of whom are executives.
After an average wage revision of 20 percent for around 298,000 permanent employees of CIL trade unions are now readying to pitch for a similar wage agreement for contractual workers of the miner. The company had said it has signed a wage agreement with workers’ unions, proposing a 20 percent hike in salaries for a period of five years. The 10th wage agreement effected in October would have an estimated impact of ₹ 56.67 billion per year on the world’s largest coal miner. Trade unions expect the average wage hike for the contract workers – whose number is estimated to be anywhere between two to three lakh – in the range of 15-20 percent.
Coal dispatches from state-run miner CIL to power sector improved by 18 percent to 39.9 mt in October, data showed. The power ministry earlier this month had also stated that coal stocks at power plants were “much better” and dry fuel inventories had started building up at the plants. CIL had supplied 33.8 mt of dry fuel to power producers in October 2016. The dispatches by the world’s largest coal miner rose by 9.6 percent to 248.9 mt in the April-October period of this financial year over 227 mt in the year-ago period. The supply of coal by SCCL, a state-owned coal mining company, also registered an increase of five percent to 4.2 mt, over 4 mt in the same month of the previous financial year. The number of plants facing acute coal shortage had come down to 12-13. The coal ministry earlier had blamed power producers for low stocks of dry fuel at their plants. Karnataka had asked the Centre to ensure adequate supply of coal and early allocation of a coal block situated in Odisha to meet the severe fuel shortage being faced by power units in his state. Rajasthan Urja Vikas Nigam in September had said that power generation at thermal power stations reduced by 2,700 MW due to shortage of coal, forcing it to resort to load shedding in the state.
The government has asked CIL to focus on production enhancement, saying it cannot let the “profitability tumble” as the recent wage hike will have an estimated impact of nearly ₹ 60 billion annually. CIL had in October signed a wage agreement with workers’ unions proposing 20 percent hike in salaries for a period of five years, which will have an estimated impact of ₹ 56.67 billion per year to the world’s largest coal miner. The public sector firm had signed the agreement at 20 percent hike in salaries against workers’ demand for a 50 percent raise. In 2017-18, CIL has been pegged production target at 600 mt with an annualised growth of about 8.3 percent over the last year. In 2018-19, the envisaged coal production projection is 773.70 mt with a growth of about 28.95 percent. Making a case for CIL’s foray into metal and mineral mining, the government has said the state-owned firm being the biggest miner in the world would like to leverage the expertise for diversification. CIL had said that the modalities for diversification into new mineral mining was expected to be ready in the next few months. According to CIL, the foray into new metals and minerals will not hinder or cause any conflict with coal production targets. CIL, which accounts for over 80 percent of the domestic coal production, is eyeing 1 billion tonnes output by 2019-20.
Making a case for CIL’s foray into metal and mineral mining, the government has said the state-owned firm being the biggest miner in the world would like to leverage the expertise for diversification. CIL had said that the modalities for diversification into new mineral mining was expected to be ready in the next few months. According to CIL, the foray into new metals and minerals will not hinder or cause any conflict with coal production targets. CIL, which accounts for over 80 percent of the domestic coal production, is eyeing 1 billion tonnes output by 2019-20.
BHEL announced commissioning of a 54 MW coal-fired captive power project in Indonesia. The 3×18 MW power project located at Sangatta, East Kalimantan, Indonesia has been set up by BHEL for PT Citra Kusuma Perdana for their coal-mining operations, BHEL said. BHEL has executed several projects in the region including projects in Malaysia, Taiwan, Thailand and Vietnam. In Indonesia, the company has earlier successfully executed a 2×30 MW boiler project for PT Makmur Sejahtera Wisesa and 2×11 MW and 1×15 MW captive power projects for PT Indo Bharat Rayon.
The GSPCB has moved court seeking criminal prosecution against MPT and SWPL for handling excess coal. GSPCB said that the board pleaded before the first class judicial magistrate in Vasco that MPT and SWPL should be prosecuted for violating the conditions of the consent to operate issued to it under the Air and Water (Prevention and Control of Pollution) Act. The MPT, which is located at Vasco, has been accused of handling excess coal at berth Nos. 10 and 11 for 2014-2015 and 2015-2016 in violation of the consent orders issued by the GSPCB. The SWPL, the GSPCB said, handled excess coal at Berth Nos. 5A and 6A at MPT for 2012-13, 2014-2015 and 2015-2016.
The underground coal fire in Ramgarh which is threatening to damage NH-33 and Koderma-Barkakana rail route in Kuju, may have been caused by illegal coal miners, said CCL, a subsidiary of CIL. Though authorities of the CCL recently got the nod from the state forest and environment department to start digging on a 5-acre plot of forest land to prevent the fire from doing further damage, the root cause of the problem remains unaddressed.
Indian energy giant Adani’s controversy-hit Carmichael coal mine project in Australia may not receive a A$900 million (900 million Australian dollars) after the Labour party- led Queensland government said it will exercise its veto to not support the financial assistance. The A$16.5 billion Carmichael coal mine project, one of the world’s largest, will start construction after being given the green light by the federal and Queensland state governments. The Adani group had applied for NAIF loan worth A$900 million for building a train line to connect its mine to the coast. Queensland Premier Annastacia Palaszczuk announced that her Labor party would veto the NAIF loan if it retains the power in the state. Palaszczuk said her government will exercise its ‘veto’ to not support the NAIF loan to remove doubt about any perception of conflict.
Power ministry is not mulling any amendment in laws for passing on the cost of retrofitting coal based-power plant to consumers. Power producers can always go to their respective regulators or electricity regulatory commissions to seek approval for increasing power tariff to recover any such expenditure citing new norms issued by environment ministry in December 2015. The generators have no option but to go for retrofitting of their plants. The cost of retrofitting a power plant ranges from ₹ 10-12 million/ MW while that for new coal-based plant would be around ₹ 50 million/MW. As many as 295 coal-based power plants have got more time of two to four years to meet strict new environment norms which were to be implemented by December 2017.
Scurrying for solutions to fight the toxic air pollution, the government has said it plans to transport coal in covered rail wagons and trucks across the country. Ferrying of coal in uncovered vehicles and rail wagons is said to be one of the key reasons behind high pollution levels along the transportation route from coal mine or importing sea port to user plants like power generation houses. For the third straight year, in the month of November, thick toxic smog enveloped the national capital region (NCR), leading to what has been called a health emergency. Coal-fired power plants are said to be one of the sources of pollution. India generates about 65 percent of its electricity using coal as fuel. It is abundantly available in the country and is cheaper than alternate fuel sources like natural gas and liquid hydrocarbons. Power plants follow stringent standards but newer equipment like Flue-gas desulphurisation (FGD), which removes sulphur dioxide, will take time to be installed. But, to begin with, transporting coal in covered wagons and trucks is being done.
Rest of the World
Chinese coal imports rose in November from the month before on firm demand during the winter heating season, even as Beijing encourages a shift to cleaner fuels in its battle against pollution. Shipments into the world’s top coal importer reached 22.05 mt in November, up 3.6 percent from October, but down from 26.97 mt a year ago, data from the General Administration of Customs showed. Coal prices in China have risen steadily this year, touching their highest since at least 2015 at 688.8 yuan ($104.07) a ton on December 4.
China is likely to complete its coal capacity reduction target by 2018, the NDRC, China’s top economic planner, said. China is expected to cut the total number of coal mines to 7,000 next year, from 10,800 in 2015, NDRC said. Coal supplies will be ample in 2018 with many coal mines increasing their production capacity. The domestic market will be balanced next year as China keeps importing coal and increases domestic output.
China’s biggest coal producers China Energy Investment Group and China National Coal Group (ChinaCoal) will keep their 2018 coal contract prices at the same level as 2017. After rounds of discussions between policy makers, major producers and utilities, the producers will set the price at 535 yuan ($80.72)/tonne. The new level has disappointed utilities just one week before China’s annual coal trade meeting in the northern port city of Qinhuangdao from November 21 to 23 when producers and utilities will negotiate volumes for next year. Last year, the NDRC, China’s top economic planner, asked coal producers to sell at 535 yuan per tonne to bring down rising prices. Rolling the policy over to this year will not help lower coal prices.
China has again urged coal suppliers and buyers to sign more medium- and long-term contracts, amid robust demand for the fuel during the peak winter-heating season. The NDRC said that medium- to long-term contracts should make up 75 percent of supply deals signed by government and municipal authorities as well as power firms. It said that railways, ports and shipping firms should make handling such contract business a priority. Contracts should run for at least a year. The NDRC had already ordered coal companies and utilities in April to fix 75 percent of their total coal purchases through long-term contracts. But Chinese thermal coal futures have still surged this year, recently rallying about 7 percent since early November to 655.6 yuan ($99.29)/tonne.
A Chinese company started construction of a new 350 MW unit at Serbia’s second largest coal-fired power plant, the first new electricity capacity in the Balkan country in nearly 30 years. The $613 million project is part of a wider deal between Serbia and China that includes expansion of a nearby coal mine and upgrade of existing capacity in the Kostolac coal-fired plant complex. Export-Import Bank of China will provide 80 percent of the funding for the entire project of $715 million through a 20-year loan. The Serbian government will secure the rest of the funds. China Machinery and Engineering Corp is carrying out the construction. Serbia generates two thirds of its electricity from ageing coal-fired plants and the rest from hydro power. It urgently needs to upgrade its energy infrastructure to meet rising demand.
Four cities in northeast China have secured a loan of $310 million from the ADB to revitalize their economies, the bank said, two years after mass layoffs at local coal mines triggered unrest in the region. The cities of Hegang, Jixi, Qitaihe and Shuangyashan – in northeast China’s Heilongjiang province – were the major casualties of a 2015 decision by state-owned Longmay Group to slash coal production, close depleted mines and lay off as many as 100,000 local workers, part of nationwide efforts to tackle overcapacity and shore up prices in the sector. The ADB loan to the four cities will be used in a project worth a total $1 billion that is designed to support the development of small- to medium-sized enterprises and help tackle environmental damage caused by decades of coal mining, the bank said.
Nippon Steel & Sumitomo Metal Corp, Japan’s biggest steelmaker, expects coking coal to stay above $200 a ton through the January-March quarter amid lower supplies from Australia, which may drag on its earnings. Australian premium coking coal futures in Singapore have surged nearly 30 percent from a November low of $174 to above $220 a ton in the first few days of December.
Greece has finalised a deal with its official creditors on the coal-fired plants the country will sell to comply with an EU court ruling. The issue was at the top of the agenda of talks between Greece and its EU and International creditors, who are reviewing the country’s bailout progress on energy and labor market reforms, on fiscal targets and privatisations.
EU state aid regulators opened an investigation into Spain’s environmental incentives for coal power plants, concerned that the scheme may give the facilities an unfair advantage. Fourteen coal power plants have received more than €440 million ($525 million) for installing new sulphur oxide filters since the scheme was introduced in 2007, with the payments due to continue until 2020. The European Commission said such incentives to reduce harmful sulphur oxide emissions may not have been justified as coal power plants were already required by EU environmental laws to do so.
Japan’s METI is seeking to determine whether clauses in long-term coal contracts that bar buyers from diverting and reselling cargoes are limiting trade. Destination clauses limit where cargoes can be delivered and prevent companies from selling excess coal to third parties in other places. METI is examining whether there’s a need to shift to spot and short-term trading from long-term coal contracts, the report said, adding that it had held a meeting with several firms and plans to draft an interim report on the coal market in February.
At least 15 countries have joined an international alliance to phase out coal from power generation before 2030, delegates at UN climate talks in Bonn said. Britain, Canada, Denmark, Finland, Italy, France, the Netherlands, Portugal, Belgium, Switzerland, New Zealand, Ethiopia, Mexico and the Marshall Islands have joined the Powering Past Coal Alliance, delegates said. The alliance aims to have 50 members by the next UN climate summit in 2018 to be held in Poland’s Katowice, one of Europe’s most polluted cities. But some of the world’s biggest coal users, such as China, the United States, Germany and Russia, have not signed up. The event triggered a peaceful protest by anti-coal demonstrators and jarred with many ministers who are working on a rule book for implementing the 2015 Paris Agreement, which aims to move the world economy off fossil fuels. Since signing the Paris Agreement in 2015, which aims to wean the world off fossil fuels, several countries have made national plans to phase out coal from their power supply mix.
Indonesia coal miner Bumi Resources estimates its output will rise to around 95 mt in 2018 from between 88-90 mt this year. Bumi had not officially revised its earlier guidance of up to 94 mt this year. But with “unusually heavy rainfall” the company hopes to achieve sales of between 87 million and 88 mt of coal in 2017. Higher coal prices this year compared to a year ago would compensate for the flatter than expected output volumes.
CIL: Coal India Ltd, mt: million tonnes, SCCL: Singareni Collieries Company Ltd, MW: megawatt, GSPCB: Goa State Pollution Control Board, MPT: Mormugao Port Trust, SWPL: South West Port Ltd, CCL: Central Coal Fields Ltd, NAIF: Northern Australia Infrastructure Facility, NDRC: National Development and Reform Commission, ADB: Asian Development Bank, EU: European Union, METI: Ministry of Economy, Trade and Industry, UN: United Nations