Coal does not reach India

Imports of Russian thermal coal to India have been declining for the second month in a row, driven by high stocks from buyers and the end of the peak electricity demand season. In October, deliveries may decrease by 51%, to 730 thousand tons. In addition, the price of Russian coal has risen, which encourages Indian companies to wait with purchases. According to analysts, despite fluctuations in exports, Russian companies have great prospects for increasing shipments to India.

For the second month in a row, Russian companies have been reducing supplies of thermal coal to India. According to the Indian agency CoalMint, in October it will decrease by 51% compared to September and will amount to 730 thousand tons. In September, thermal coal imports from Russia fell for the first time since May. India and China are the most sought-after markets for Russian coal miners as a replacement for Europe, which has imposed an embargo on supplies from Russia.

There are two reasons for the supply cut. First, Indian steel companies and cement producers have accumulated large reserves of thermal coal (they sometimes use it as a substitute for coking coal). These industry segments, CoalMint notes, increased their use of Russian coal during the year due to its price attractiveness compared to alternative suppliers.

In addition, Indian companies expect Russian coal prices to rise in the near future. In September, prices for high-grade Russian thermal coal supplied to India rose to $200 per ton on CIF terms against $185-190 in July-August. At the same time, the largest buyers of Russian coal in India – ArcelorMittal, Nippon Steel, Ultratech Cement and Rashmi Group – have already created sufficient reserves for the next two to three months. In addition, cement producers prefer petroleum coke, and the energy sector is increasing purchases of cheaper local and Indonesian coal.

The growth in deliveries to India is largely due to the reorientation of exports by the largest Russian coal company SUEK, which supplies coal from Kuzbass, Khakassia, Buryatia and the Khabarovsk Territory. As noted in the August review by Argus, SUEK has used all available routes for export to India, shipping coal from its own terminals in Murmansk and the Far East port of Vanino, as well as from the terminal in Taman. SUEK did not respond to Kommersant’s request.

Significant discounts on Russian thermal coal in the summer allowed India to replace the volumes supplied from the US and South Africa. At the same time, in August, the Indian authorities forced the industry to actively purchase imported coal due to high electricity consumption and low coal reserves at power plants, which fell to the level of ten days of consumption instead of the standard of three weeks. With the end of the hot weather and the decrease in electricity consumption for air conditioning, the need for Indian companies to import coal has fallen.

Despite the problems in September-October, there are prospects for the growth of Russian supplies. Boris Krasnozhenov from Alfa Bank emphasizes that about 70% of electricity generation in India is provided by coal generation, and according to Wood Mackenzie, thermal coal imports to India can grow by 7%, to 158 million tons in 2022 and another 3% in 2023. At the same time, total imports of thermal and coking coal to India in the first half of the year remained approximately 10% below the pre-pandemic levels. “India is gradually catching up with China as the largest importer of thermal coal,” the analyst notes. In his opinion, the potential volume of Russian coal exports to India can reach 40 million tons over the next ten years.

Evgeny Zainullin