INDIAN COAL MARKET
Although India ranks at the fifth position in terms of being the largest coal producer in the world, still a substantial amount of steam coal (accounting for almost 19%) is imported globally. Some of the key countries on which India relies on the import of thermal coal supplies are Indonesia, South Africa, Australia, etc.
On the other hand, there are huge speculations that the Indian government is advancing towards complete electrification which would make the demand for coal fleet grow constantly.
It is also anticipated that India would spearhead future demand of Asian coal by imports reaching a staggering figure of 181 MMT that would keep on escalating in future years. Especially, the metallurgical coal that India imports in huge quantities from Australia and Coking Coal from China.
FACTORS AFFECTING THE IMPORT COAL PRICES
Various factors contribute to the pricing structure of Coal when it is imported from other countries. Some of the major one’s are listed below
- DEMOGRAPHICS- The location, geographical territory, Mining Areas, topography, seasonal fluctuations play a vital role in determining the imported coal prices in India.
- All these aspects combined shape up the price structure of coal when imported from other corners of the world.
- DISTANCE FROM THE MINE IT IS IMPORTED- The distance of the mine from the imported ports is yet another crucial factor that plays a huge part in determining imported coal prices.
- The freight charges, transportation cost, fuel expenses keep the price structure of coal material dynamic as it varies from place to place.
- FREIGHT RATE- The shipping charges (freight rate) also has a direct effect on influencing the coal price in the domestic market.
- These charges form a part of the imported coal material and bear a vital impact on the coal prices In the Indian market when imported from other mines or harbors.
The coal import prices are majorly determined by the CIF (cost, insurance, and freight) and export prices by FOB(Free on Board). The FOB price is the aggregate of its cost and the transportation charges from the mine to a terminal where it is imported.
- COAL MATERIAL- The price of coal material is also dependent to a large extent on its grade or material composition.
- For instance, the moisture content, carbon percentage, presence of other elements like sulfur, nitrogen, oxygen, etc all add up to structure the price of imported coal.
- BILATERAL NEGOTIATIONS- The coal sector has massive capital investment in it.
- The seller and buyer both invest a large proportion of capital in the coal supply industry.
- In the majority of the cases, coal purchasers are the ones who are engaged in power/electricity generation plants while sellers belong to the category who make investments in the coal mine.
- These long-term projects aid several means of transport like railways, ships, and ports, transport infrastructure, etc.
- These projects serve as them guarantee to finance such projects.
Besides these, the quality of coal also plays a vital impact on the coal trade.
- SPOT PRICE- The definition of ‘spot price’ is not exact when it comes to international coal trading.
- In some situations, it refers to the transaction of a single cargo while in others it relates to a series of cargoes.
- Few spot contacts are originated between small suppliers or purchasers while some take place based on the long-term relationship between sellers and buyers.
The spot price has gained much recognition in the past few years because the buyer segment strives to reduce the cost and at the same time maintain the flexibility in supplies while matching up the uncertainty in demand.
- FUTURES AND DERIVATIVES MARKET- The rapidly growing Futures and Derivatives Market in the coal industry creates a significant impact on the prices of coal.
- The emergence of advanced technologies, electronic trading, and financial derivatives have a major impact on the prices of coal.
- Besides the physical buyers and sellers of coal, banks and other financial institutions also play a major part in the coal trading market.
- This mechanism has steadily lead the coal market to make a transition from the commodity/spot market to genuine figures market.
Since India is actively advancing towards self-sufficiency under the ‘Aatma Nirbhar Bharat Abhiyan’, the restriction in the scale of imports had lead to a wider spread between domestic and international markets.
One sharp contrast was noticed in the Australian and Chinese territories. While the prices in Australia remained at all levels low, in China there was a sign of domestic price recovery.
However, these restrictions also created a major impact on seaborne prices. This happened because the low demand outside China was accompanied by fewer sales opportunities there. It created a lot of pressure for the policymakers in China who were responsible to balance domestic manufacturing against the lower cost involved.
- Coal Quality- The prime factor to determine the quality of coal material (especially thermal coal) is its calorific value.
- The varying calorific values of coal represent different market sentiments. The one having a lower CV is cheaper per tonne in comparison to high CV Coal. This is because of the lower energy content in the low CV coal.
- Besides this, low CV Coal involves a higher level of logistics cost because of the presence of high moisture content and limited efficiency.
- This is the prime reason why Low CV coal is traded at discount per unit of energy.
There have been many instances where the blending of these 2 types of coal has been said to reap great results. For example, Indonesian Coal containing lower moisture and ash level is said to be a good substitute for High sulfur and ash Chinese bituminous coal.
There is also a very sharp contrast between the prices of low calorific coal from Indonesia as they are far less volatile as compared to high calorific thermal coal.
- Operating Cost- The cost of coal is also decided by the ancillary cost involved in terms of labor involved, cost of raw materials, fuel, taxes, etc.
- This is further compounded by other transportation expenditures like port charges, inland transportation, freight rates, etc.
- Even the type of mining involved could make an impact on the prices of coal, for example, underground mining could depend on a lot of additional parameters like producer, mine location, etc.
[/vc_column_text][/vc_column][/vc_row]