Often forgotten amongst the coal producing nations, India is the world’s third largest coal miner and the fourth largest in terms of reserves. The country also has an increasing demand for internationally traded coal and is seen by many in the industry as the next great game changer after China as its huge, billion plus, population seeks to follow a similar path to industrialisation.
Often forgotten amongst the coal producing nations, India is the world’s third largest coal miner and the fourth largest in terms of reserves. The country also has an increasing demand for internationally traded coal and is seen by many in the industry as the next great game changer after China as its huge, billion plus, population seeks to follow a similar path to industrialisation.
India produced 572 million tonnes of coal in 2010, about 7% of the world total. Around 70% of the total production is used for electricity generation and the remaining by the steel, cement and other heavy industries. Coal is also used as fuel for domestic purposes. According to the 2010 BP Statistical Energy Survey, India had 2009 coal reserves of 58,600 million tonnes, 7% of the world total. Most of the coal production in India comes from open pit mines located in the northeastern part of the country. A number of large open pit mines of over 10 million tonnes per annum capacity are in operation. Underground mining currently accounts for around 19% of national output. The majority of this production is achieved by conventional Bord and Pillar mining methods.
Most of India‘s coal is characterised by high ash content, but it has other useful qualities such as low sulphur content (generally 0.5%), low iron content in ash, low refractory nature of ash, low chlorine content and low trace element concentration.
Coal mining has a long history in India but remained relatively small scale until well into the 20th century. However, through a sustained programme of investment and greater use of modern technologies, it has been possible to raise the production of coal in the country from a level of about 70 million tonnes in the 1970‘s to nearly 600 million tonnes today.
Despite the huge increases in domestic production India still struggles to meet its requirements and has become a major importer of thermal and coking coal. In recent years some of the international seaborne supply routes have diverted course to India. For instance, a lot of South African coal that previously went primarily to Western Europe is now sent to India. Similarly India will overtake Japan to become the biggest importer of Indonesian coal. Indonesia is set to export 60Mt of coal to India this year, compared with 58Mt to Japan. Significant quantities of coking coal are also arriving to the country from Australia and a lot of the new supply expected to come out of Mozambique in the coming years will supply the Indian steel industry.
Indian demand for seaborne coking coal is driven by the fundamental lack of good quality domestic coking coal and the ambitious steel industry expansion driven by the National Steel Policy. The Ministry of Steel in India plans to nearly double its domestic crude steel production capacity to 145Mtpa by 2016. This push for increased steel capacity is driven by expected GDP growth of 9-10% per annum over the next five years. Given the significant growth expected in crude steel production and the scarcity of high quality coking coal, vertical integration is becoming increasingly common amongst Indian steel producers. There have been numerous deals in recent years with Indian companies taking control of coal assets across the globe, from Queensland in Australia to the newly developing mining regions in Indonesia. Last year, Indian companies overtook those from China, Korea and Japan as the biggest Asian buyers of overseas coal assets. India signed $2.4bn of deals out of a global total of $16bn last year.
In the early 1970s, all privately owned coal-producing companies were nationalized under the Coal Mines Nationalisation Act. About 88% of total coal production in the country is produced by various subsidiaries of Coal India Ltd. which is the largest supplier of coal in the country and is in fact the largest coal producing company in the world. Coal India currently operates about 471 mines in 21 major coalfields across 8 states in India, including 163 open cast mines, 273 underground mines and 35 mixed mines. The company produced 431Mt of coal in 2010 and has resources of 64.8 billion tonnes. Up until last year Coal India was 100% owned by the government of India until it divested 10% in November.
While the Government of India deregulated coal pricing with effect from January 2000, there have been only five price hikes by Coal India since the year 2000. Given that a significant portion of the coal is supplied to the thermal power sector, any increase in prices has a direct impact on the price of electricity and is therefore heavily regulated by the government to manage their ambitious industrial development targets. To put things in perspective, since 2000, Coal India has increased prices by 72% versus the 500% increase in global prices over the same period. Despite these modest price rises Coal India is able to maintain a reasonable level of profitability as it is among the lowest coal producers in the world with a cash cost of USD14/tonne versus a global average of USD40/tonne.
Although Coal India is predominately State controlled, efforts are being made to open the industry to Indian private investors. Through various amendments, and following the liberalization measures since 1991, captive mining for some specific end-uses like - power, cement, steel, coal gasification and coal liquefaction - was permitted. Further, in 2001 the Government of India adopted a liberal policy framework and allowed state-owned entities to carry on mining, by putting them on par with Coal India. However, despite all these initiatives, coal production through these entities have not really picked up in any meaningful manner.
Stephen Hough,
Market Analyst,
New World Resources
shough@nwrgroup.eu