Coal prices are down 50 percent in recent months coming in as a positive for steel companies. Is there more down side in store for coal?
Discussing the outlook for coal, Deepak Kannan, Managing Editor, Thermal Coal at Platts, says demand has been quite muted and prices are down significantly this year.
"India has a coal issue, we have a lot of vessel congestion at some of the ports in India and then there is shortage of railway rakes to transport the coal from the ports to the power plants. There is growing demand in India for coal but Coal India, which is the major supplier, is still falling short of production target. So, what it means is India is reliant on imported coal for the time being. However, there are a few issues to be sorted out in terms of logistics," he said. .
Below is the transcript of Deepak Kannan's interview with Menaka Doshi and Senthil Chengalvarayan on CNBC-TV18.
Menaka: We have seen a continuous decline in coal prices not just in the past few months but over the past couple of years. What is the current outlook on coal?
A: The demand has been quite muted. We should understand that India and China are the major buyers along with South Korea, Taiwan and even Japan. A lot of things are happening in China and India this year. China is trying to restrict its imports and also trying to boost its domestic production, it is trying to boost the price for its domestic coal and that is having significant impact on the international coal prices at the moment.
The prices are down significantly this year. India has a coal issue, we have a lot of vessel congestion at some of the ports in India and then there is shortage of railway rakes to transport the coal from the ports to the power plants. There is growing demand in India for coal but Coal India which is the major supplier is still falling short of production target. So, what it means is India is reliant on imported coal for the time being. However, there are a few issues to be sorted out in terms of logistics.
Senthil: Will India keep a floor on coal prices then?
A: India has been price sensitive because electricity tariffs are not linked to the coal prices yet. Whereas the China if there is demand they can push up the price. So, this year what we are seeing is China is not importing as much as it should have or it has historically. While India is still buying but they are keeping the prices at a subdued level. Although there is demand from India this is still having no major push towards rising prices.
Menaka: Can you walk us through what the supply surplus is globally at this point in time in terms of coal?
A: There is plenty of supply for instances talking about an unrelated market South Korea utilities usually buy their coal through tender and one of the utilities sought one million metric tonne of coal and they got offered seven million metric tonne so you can see the amount of supply that there is for each enquiry you will get around 10 offer. So, everyone has coal to offer but there are not many buyers.
Menaka: Any numbers that you can put to the over supply globally?
A: For instance China usually buys around 300 million metric tonne of coal each year and this year they have cut down by around Rs 25-30 percent so rest of the tonnages is still being offered in the market.
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