India’s coal production and import will fall due to bettering station heat rate

Impact Analysis: India’s core industry has recorded two year low growth of 0.4% in June, 2017; higher inventory in the system lowered the core industry production. SMERA believes that India’s coal import would be less than 100 million ton within the next five year due to bettering station heat rate.

Impact: Negative

India’s core industry growth has dropped to a two year low of 0.4% in June, 2017. Steel production, which has expanded by 5.8% during the same month has had the most positive contribution in the overall core industry growth. The steel industry is growing in a positive trend for the past seventeen months after imposition of anti-dumping tariff in early 2016.

The sectors that have negatively contributed to the growth of this category include coal, petroleum refinery products and cement. While cement industry is reeling under excess inventory in the system, coal mining is suffering because of improving efficiencies. Due to better quality of coal the Station Heat Rate of the thermal plant has improved, as a result coal consumption per unit of power generation has dropped significantly. Coal mining, which accounts for 10.3% in overall core industry, has recorded de-growth of for third consecutive month and therefore coal production is expected to remain low in FY18.

India’s coal production has reached 671.5 million tons in FY17. As a result of a rise in production capacity and quality, India’s coal import has also dropped significantly from 217.8 million tons in FY15 to 191 million tons in FY17. In years ahead, massive capex in solar and other renewable energy will reduce the power generation in the thermal plants. As a result, demand for coal is expected to fall significantly. At the same time, improvement in the quality of domestic coal will reduce the coal consumption. Considering this development, SMERA believes that India’s coal import would be less than 100 million tons within the next five year.

 

Core

(100)

Coal (10.33)

Crude Oil (9)

Natural Gas (6.9)

Petroleum Refinery (28)

Fertilizers (2.6)

Steel (17.9)

Cement (5.4)

Electricity (19.8)

Jan-17

3.4

3.5

1.3

11.6

0.0

-1.2

11.3

-13.3

5.2

Feb-17

0.6

6.6

-3.4

-2.1

-2.8

-4.0

8.7

-15.8

1.2

Mar-17

5.2

10.6

0.9

9.6

2.0

-3.0

11.0

-6.8

6.2

Apr-17

2.8

-3.3

-0.6

2.0

0.2

6.2

9.3

-2.4

5.4

May-17

4.1

-3.2

0.7

4.5

5.4

-6.5

3.9

-0.4

8.6

Jun-17

0.4

-6.7

0.6

6.4

-0.2

-3.6

5.8

-5.8

0.7

FY17(Q1)

6.9

5.3

-3.3

-5.8

8.9

3.3

9.0

5.8

10.0

FY18(Q1)

2.4

-4.4

0.2

4.3

1.8

-1.9

6.2

-2.9

4.9

Source: Ministry of Commerce, SMERA Research
Note: Weight of the industry is given in bracket

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