In early 2015 the broad consensus was that the firm growth in thermal coal shipments to India seen in 2014 would continue in 2015, helping to offset much of the loss from Chinaâ€™s declining imports.
However, after India overtook China as the worldâ€™s leading steam coal importer in 1H 2015, Indian imports have cooled in recent months, removing a further source of support for the seaborne thermal coal market.
A Promising Initial Outlook
Indian thermal coal imports increased 9% y-o-y in 1H 2015, following firm growth of 23% in 2014. The outlook for seaborne steam coal trade appeared delicately balanced as India absorbed increasing global oversupply, overtaking China as the worldâ€™s leading coal importer. However, the situation has changed dramatically in 2H 2015 so far, with Indian thermal coal imports growing only 1% y-o-y over the first eight months of the year. The slowdown has been due to a number of factors.
Ramping Up Domestic Output
Most importantly, Indian thermal coal imports have been undermined by the governmentâ€™s promotion of domestic output, by encouraging private participation and easing environmental restrictions. Coal India, the state owned miner which accounts for around 80% of total Indian coal output, has invested heavily in rail construction and new mining equipment, saw production increase 8% y-o-y in the first nine months of 2015, to reach 426mt. Coal India has also set the target of more than doubling output by 2020. While this appears over-optimistic, even continued expansion at the current rate would pose a significant downside risk to future import growth.
Coal Fired Power Easing
Secondly, the decline in Indian thermal coal import demand has coincided with the overall slowdown in national electricity generation this year, with some key power-intensive industries showing considerably slower growth than in 2014. Overall, the pace of growth in Indian coal fired power generation dropped from 11% y-o-y in full year 2014, to 4% y-o-y in the first nine months of this year.
Additionally, while reports indicate that Indian thermal coal stockpiles at power plants have begun to drop in recent months, the levels seen remain close to averaging 20 days of capacity, compared to only 5 days in October 2014. This has put pressure on the countryâ€™s thermal coal import demand in the year to date, which is likely to continue in the near future. Indeed, while the countryâ€™s restocking normally picks up in the final months of the year, the growth is expected to be fairly limited this year given Indian power stationsâ€™ healthy existing inventories.
So, in the space of just a few months Indian steam coal imports have transformed from registering firm growth and potentially providing the crucial counterbalance to the collapse in Chinese import demand, to cooling significantly and in recent months compounding the decline in global seaborne thermal coal trade. Furthermore, expectations of firm domestic output expansion make the outlook for Indian steam coal import growth appear difficult in coming years.