What is Happening with Indian Coal Imports?

BRISBANE, Australia - March 19, 2013 - PRLog -- Trying to forecast near term variations in Indian coal imports can be difficult. To begin with, real time data essential to driving such an outlook are hard to standardize and vary significantly across sources.

Nevertheless, the sharp decline in Indian imports in February took almost everyone by surprise. Shipping data suggested that imports dipped by 10%-15% in February from the previous month. Media reports based on data from shipping brokers Interocean estimated that February imports declined 11% in February to 12.6Mt, though much of the decline was concentrated on coking coal.

Real time data provided by Indian customs were showing a much larger decline in imports, closer to 30% from 12Mt in January to 8Mt in February. The decline, according to customs data, was large for both coking and thermal coal. Thermal coal, for instance, was reported to have declined 25% from 8.5Mt in January to 6.5Mt in February. Coking coal was reported to have dropped even more drastically on percentage terms, from 3.5Mt to 1.8Mt.

Despite the variation in data across the sources, one thing was clear: imports had come down sharply. This decline had been somewhat unexpected. Most indicators were pointing towards an increase. Imports had been holding steady after rising in December when it became clear around October - November that Coal India Limited (CIL) would likely miss its annual production target of 464Mt.

In October and November CIL lost ground on production on account of rain and holiday-related production delays. Production picked up again towards the end of the third quarter but a two-day pan-India labour strike in late February was expected to further disrupt production. Between April 2012 and January 2013, CIL produced only 355Mt.

Actual coal supplies to consumers from existing stock had been improving steadily through the third quarter but it was not enough to back off the need for imported coal. Although rake availability for coal transport had increased considerably from last year, it was still hovering about 170-180 rakes a day at the end of the last quarter.

The combination of production and supply issues through the end of the last quarter, although much improved from last year, had not been adequate to ease the import need. The sustained increase in imports in December and January may have been the result of those impacts.

So what suddenly changed in February?

CIL chairman and MD, S. Narsing Rao, said in an interview with Economic Times last month: "The focus this year is on off take so that stocks may be liquidated."

That pretty much summarized everything.

This isn't the first time Mr Rao has brought up the need to focus on off-take, or actual supplies to consumers. He has long maintained that creating dual targets on production and off-take aren't helpful. Instead, he maintains, the firm should be measured for performance based on off-take.

Mr Rao's intent to shift focus towards off-take appears to be gaining roots.

Since January CIL has accelerated the depletion of its coal stock. It started the fiscal year (April 2012) with 71Mt. By the end of January 2013, stocks had dropped some 24Mt to 47Mt.

The acceleration in off-take has been made possible by the rapid increase in rake availability for transport. In January, rake availability increased to 210 rakes a day on average. Mr Rao had been pressuring railways to increase this further to about 240 rakes a day for February. It is not clear that he got all what he wanted but, as the imports numbers suggest, he must have gotten most of it.

In his first year in office, Mr Rao has shifted the focus for CIL from production to off-take. He has bet that the growth for CIL will come not merely on unlocking the constraints to production growth but from emphasizing the need to bolster transport capacity. That's why most of his grandest investment outlays are on building railway infrastructure in partnership with Indian Railways.

Mr Rao's strategy is already beginning to show results. CIL is expected to close the year with production growth under 6% – it will miss its production target. But it will post off-take growth of over 8% and likely meet its off-take target of 470Mt, or very narrowly miss it by about 1% or so.

Although CIL will have significantly dipped into its stock, it will start the new fiscal year with about 40-50Mt in inventories. Changes to these stocks have the ability to swing imports into India far more than any price variation in international prices.

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