Indian government cold towards increasing coal demand in the country

The Indian coal industry is one of the core industries in the country and is dominated by public sector undertakings, particularly Coal India Ltd. The industry involves coal and lignite mining, production and trading. Despite the presence of abundant resources, India has been facing persistent coal shortage in the last few years and has become a net importer of coal to meet its growing energy requirements. The Ministry of Coal allows production of coal from allocated coal blocks for specific stipulated use only. Generally, companies in the power, steel and cement sectors own coal blocks in India. The coal mines are government property and it has the sole right to mine and produce coal.  This has resulted in inefficient use of available resources.

FY13 was a difficult year for the Indian coal industry owing to controversies surrounding coal blocks allocation scam. The supply of coal from domestic sources was not able to meet the huge demand for coal. In FY13, the demand for coal exceeded its supply by around 192 MT. The situation was more acute in the case of coking coal where the demand was nearly 1.5 times that of supply. However, the drop in demand for coal in China led to a decline in global coal prices during the fiscal year 2013 which made coking coal imports cheaper.

India’s growing energy requirements and rising per capita consumption, coupled with the reforms in land acquisition and environment clearances, bode well for the sector.

Key Findings

• During the past three years, the demand for coal has superseded the total supply, which has resulted in a wide demand-supply gap. In FY13, the demand-supply gap increased by 19.2% y/y.
• The total coal production in FY13 grew by 3.3% over FY12 production. The Ministry was able to achieve 97% of the targeted production.
• In FY13 budget, the government waived off customs duty of 5% on non-coking coal. It also decreased      countervailing duty to 1% from 5% to ease import of non-coking coal. As a result of duty exemption, non-coking coal imports grew by 75% y/y to exceed a figure of 97MT.
• The coal production index slipped in the second half of FY13. The index recorded an average growth rate of 0.2% in 2HFY13 against 9.3% recorded in 1HFY13.

Chart: Y/Y change in index of industrial production-FY13 (Base 2004-05)

 

These are only a few of the insights in the new EMD Report : India Coal Industry . Learn more and purchase now>>

 

Indonesia’s steel industry growing strong

Indonesia’s steel consumption grew robustly by 22.4% y/y to 10.95mn metric tonnes in 2011 in line with the growth in domestic steel demand. As the country with the largest economy and highest population in ASEAN, its share of steel consumption reached 20.9% making it the top second steel consuming country in the region.

With about 300 domestic players, the steel industry of Indonesia employs more than 500,000 people and is capable of producing 5.5mn tonnes of total steel products annually including hot-rolled steel products (bars, wire rods and plates) and crude steel products (billet and slab). And more production is expected in the coming years.

Salient points 

• The significant increase in Indonesia’s steel consumption in 2011 was supported more by import, which was 32% higher than the 2007 level, and not from domestic production. 
• The country’s domestic steel production increased 4.5% y/y to 5.45mn tonnes in 2011. Bars and wire rods are the primary steel products and account for the largest annual production output of the industry. 
• The gross domestic product (GDP) of the Indonesian iron and basic steel industry increased 3.4% y/y to IDR 8.0tn in Q2/2012.

Much more in the Emerging Markets Direct report: Indonesia Steel Industry 1H12

 

Indian coal industry going cold

India’s GDP grew by 5.3% in the fourth quarter of fiscal year 2012, recording its worst performance in last nine years. This slowdown in growth was primarily a result of high inflation, high interest rates and policy paralysis. Indian mining industry also suffered a slowdown as index of industrial production for mining contracted by 2 percent YoY in FY12. However, Indian coal mining industry witnessed a growth in both production as well as sales. The annual production of coal grew by 1.3 percent to reach 539 million tons. The size of Indian coal industry was estimated at INR 800 billion by the end of fiscal year 2012. Ministry of Coal has planned to increase the coal production by an average of 36 million tons per annum in the 12^th five year plan.

The proven coal resources in India were recorded at around 114 billion tons as on April 1, 2011.  Despite the availability of vast coal assets, the country was a net importer of coal in FY12 due to domestic supply side constraints and burgeoning demand for coal. The demand supply gap estimated at 161.5 million tons at the end of fiscal year. Coal imports touched a figure of 99 million tons recording a YoY growth of around 43 percent. The government of India waived-off the customs duty on non-coking coal to ease the import of the same to meet domestic requirements.

In January 2012, Coal India Limited decided to increase prices and benchmark them according to Gross Calorific Value (GCV).The move, however, attracted a lot of opposition. Eventually, Coal India Limited had to roll back prices as a result of increasing pressure from power sector companies. The last quarter of the fiscal year also witnessed a controversy surrounding allocation of coal blocks to private and public sector companies without auction during the period 2004-09. The basis for this controversy was a report from Comptroller and Auditor General of India (CAG), which estimated a notional loss of INR10.6 trillion to the exchequer for not following a competitive bidding process in allocation of coal blocks. Central Bureau of Investigation entrusted with the responsibility of investigations in this case. Meanwhile, the Ministry of Coal allocated 81 coal blocks to power sector companies in May 2012 in pursuance of its policy to give preference to power sector. The Ministry also directed Coal India Limited to sign Fuel Supply Agreements (FSAs) covering total quantity of 438.29 million tons in May 2012 to thermal power plants.

In FY12, Coal India Limited continued to lead the industry by recording net sales of around INR 624 billion, a YOY growth of 24 percent. However, its total expenses increased by 26 percent during the same period due to increase in wage costs. The employee benefits expense of CIL spurted by 61.3 percent QoQ in fourth quarter after finalization of National Coal Wage Agreement (NCWA IX) on January 31, 2012. Neyveli Lignite Corporation recorded net sales growth of 13 percent and net profit growth of 9 percent YoY in FY12. Gujarat NRE Coke Limited registered a net loss of around INR 400 million in the fourth quarter due to foreign exchange losses. Adani Enterprises Limited also recorded a 26 percent decline in profits YoY in the fiscal year 2012.

Salient Points

• The Index of Industrial production recorded a 0.1 percent increase in the month of April 2012 as against April 2011. In fiscal year 2012, on an annual average basis, mining industry contracted by 2 percent compared to fiscal year 2011.
• Total production of coal was around 539 million tons in FY12 which was 14 million tons less than the targeted production. Coal India Limited recorded coal production of 435 million tons which was 81 percent of the total production.
• The demand supply gap for coal was estimated at 161.5 million tons for FY12 by Ministry of Coal which was 22 percent higher than the FY11 figure.
• Total coal imports touched a figure of 99 million tons in FY12 as against 69 million tons in FY11, a YoY growth of 43.5 percent. Coking coal imports recorded a growth of 29.6 percent while non-coking coal recorded a growth of 28.6 percent.

Chart: Coal Production in India (In Metric Tons)

Source: Press Information Bureau, Govt. of India

These are only a few of the insights in the new India Coal Industry 1H12 report. Learn more and purchase now>>