Thursday, 17 November 2011
The South African Coal benchmark price, API4, has recently been trading below $110/t, after spending most of the year closer to $120/t, due to weak global demand for seaborne thermal coal. Many market participants have expected that dangerously low utility coal stocks in India would provide some support to prices, but Indian utilities have not picked up their pace of buying, which, might take a while to recover unless, see more states increase power tariffs, said Barclays in a research note.
According to the ICMW, an especially wet monsoon season has caused Indian coal production in August to fall by more than 15% y/y and flooded coal stocks. October was then marred by regional political protests and industrial action that further hampered the recovery of domestic production. The reduction in production and lack of imports have led to domestic coal shortages, which in turn has resulted in endemic power shortages.
According to a CEA report, as of 7 November, 38 thermal plants in the country have coal stocks at highly critical levels (less than 4 days). While a lack of imports has contributed to the shortfall, there is an incongruity in that India still boasts high port stocks, currently at more than 10mt. One of the reasons is that power generators are reluctant to burn the expensive seaborne Coal to resolve the power shortage since they are currently negotiating with the state governments for an increase in power tariffs.
Moreover, power utilities are also reluctant to burn the expensive coal since the regulated power prices have not fully kept pace with the high level of coal prices seen this year. In FY 2010-11, average power rates rose 6.5%, while the cost of generation increased by 16.5% in the period.
Moreover, with Coal India raising domestic coal prices, the squeeze on power plant profits has strengthened. Recently, news of state-specific increases in power prices has started to appear. At least 8 out of the 28 states and 1 territory (Delhi) have either implemented or proposed power tariff hikes in the past three months.
Most notably, Maharashtra, the state with the largest thermal generation capacity, has announced power tariff hikes of roughly 10% in early November. Nonetheless, despite these hikes, the scale of increase in input costs still outpaces current power prices in most of the country.
As a result, although the recent power tariff hikes, in theory, should provide some incentive to re-open the window for imported coal in India, there is still some way to go for those tariffs to rise before the utilities break even, and thus the increase in imports could be slow to materialize.
Source: Commodity Online
The South African Coal benchmark price, API4, has recently been trading below $110/t, after spending most of the year closer to $120/t, due to weak global demand for seaborne thermal coal. Many market participants have expected that dangerously low utility coal stocks in India would provide some support to prices, but Indian utilities have not picked up their pace of buying, which, might take a while to recover unless, see more states increase power tariffs, said Barclays in a research note.
According to the ICMW, an especially wet monsoon season has caused Indian coal production in August to fall by more than 15% y/y and flooded coal stocks. October was then marred by regional political protests and industrial action that further hampered the recovery of domestic production. The reduction in production and lack of imports have led to domestic coal shortages, which in turn has resulted in endemic power shortages.
According to a CEA report, as of 7 November, 38 thermal plants in the country have coal stocks at highly critical levels (less than 4 days). While a lack of imports has contributed to the shortfall, there is an incongruity in that India still boasts high port stocks, currently at more than 10mt. One of the reasons is that power generators are reluctant to burn the expensive seaborne Coal to resolve the power shortage since they are currently negotiating with the state governments for an increase in power tariffs.
Moreover, power utilities are also reluctant to burn the expensive coal since the regulated power prices have not fully kept pace with the high level of coal prices seen this year. In FY 2010-11, average power rates rose 6.5%, while the cost of generation increased by 16.5% in the period.
Moreover, with Coal India raising domestic coal prices, the squeeze on power plant profits has strengthened. Recently, news of state-specific increases in power prices has started to appear. At least 8 out of the 28 states and 1 territory (Delhi) have either implemented or proposed power tariff hikes in the past three months.
Most notably, Maharashtra, the state with the largest thermal generation capacity, has announced power tariff hikes of roughly 10% in early November. Nonetheless, despite these hikes, the scale of increase in input costs still outpaces current power prices in most of the country.
As a result, although the recent power tariff hikes, in theory, should provide some incentive to re-open the window for imported coal in India, there is still some way to go for those tariffs to rise before the utilities break even, and thus the increase in imports could be slow to materialize.
Source: Commodity Online
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