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Letter: Coal prices on the rise
The rising demand for coal from India and China, coupled with global financial recovery, is driving thermal coal prices that have appreciated in the recent past few months and it is expected that the global prices of coal shall remain firm and rise further
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he rising demand for coal from India and China, coupled with global financial recovery, is driving thermal coal prices that have appreciated in the recent past few months and it is expected that the global prices of coal shall remain firm and rise further.
Power generation is what is driving the demand for coal in India and China. In India new coal-fired power plants, ranging in size from 50 megawatts to 4,000 megawatts, are being built throughout India. Power plants are symbols of how rapidly India’s economy is expanding.
Similarly, China shall remain a net importer of thermal coal for the coming few years as its economy is growing at a firm speed and is expected to deliver a mind-boggling growth in 2011. China’s coal imports more than doubled to 150 million tons from the previous year. Closure of smaller mines, coupled with an increased demand from the power sector, has triggered China’s demand for imported coal.
India has also emerged as one of the major importers of coal. The imports are likely to be around 100-150 million tons for the current year as it adds new thermal capacities. India imports about three quarters of its coal requirement from Indonesia, while South Africa and Australia accounts for the rest.
The quality of Indonesian coal is much better than Indian coal. The gross calorific value of Indonesian coal ranges between 5,000 and 6,500 kilo calories per kilogram (kcl/kg); while for Indian coal it is only 3,000-4,500 kcl/kg with high ash content. The bulk of the imported coal in India is used by power companies, which use it to blend with the local coal to improve calorific value.
The higher energy demand in India would drive up the import of coal. The overall energy generated in India could double within a decade. The Indian power sector will heavily depend on coal for decades to come. At the same time, India’s steel industry, also dependent on coal, is expected to treble its output within a decade.
But there is growing concern on where all the coal is going to come from. India has significant coal reserves suitable for power generation and boasts the world’s biggest coal company, the government-owned Coal India Limited. But the expansion of the Indian economy has been so rapid, demand is outstripping domestic supply.
Due to government regulatory delays, infrastructure bottlenecks and security risks are encouraging Indian firms to look overseas to secure coal supply especially in Indonesia, South Africa, Mozambique and Australia, etc. for their ambitious power projects in India.
The growth in Indonesia’s coal exports in the last five years reflects the ability of its coal industry to respond to the rapid growth in Asian demand for thermal coal.
Sunil K. Kumbhat
Jodhpur, India
