India emerging as a major force in the global coal market
By Mike Cooper in Perth
February 9 - The international coal market is still reeling from the enforced changes it is making on a near daily basis to keep pace with rising Indian demand. (See related chart: Daily Coal Price Trends -- Physical ($/mt): July 2, 2010 - February 8, 2011).
Replacing Europe as the main consumer of Richards Bay coal, a major customer for Indonesian material and with huge power projects about to come online -- India is fast becoming a force to be reckoned with. (See related chart: FOB Richards Bay (6,000 kcal/kg NAR): July 2, 2010 - February 8, 2011).
The largest coal mining company in the world, Coal India Limited is putting the finishing touches to a long-term coal supply contract framework that could see it purchase tens of millions of tons of imported thermal coal from Australia, Indonesia, South Africa and the US from a list of pre-selected coal suppliers for delivery starting in April, according to sources in the Indian market.
The Kolkata-based Indian coal producer is assembling a panel of coal suppliers, each able to supply the state-owned miner with a minimum of 1 million mt/year of imported thermal coal under the terms of its 10-year Long Term Off-take of Coal contract framework.
Article continues below...
International Coal Report and its daily companion, Coal Trader International, deliver expert and respected benchmark price assessments for coal trading in the Atlantic and Pacific markets including price assessments for European CIF ARA, FOB Newcastle, Richards Bay and Indonesia.
Register for a complimentary issue
See a sample
Get your newsletter subscription now
Coal India has already drawn-up a short-list of potential coal suppliers from parties that responded to its request for expressions of interest last August.
These short-listed suppliers have now been invited by Coal India to participate in the second round of its panel selection process which is currently underway.
Companies that were successful in qualifying for the second selection stage have been sent copies of Coal India's draft Contract for Long Term Off-take of Coal (CLTO) and have been asked to comment on its proposals.
Importantly, Coal India said its long-term coal supply contracts are "expected to be finalized at a price less than the prevailing import price."
All price offers for the tender will be evaluated on a cost and freight (CFR) India basis, the document said. (See related chart: Coal 6300 kcal CFR EC India: September 1, 2010 - February 8, 2011).
"The purpose of such a CLTO is to insulate [Indian] consumers from any international price volatility and secure the quantities for a period of 10 years," Coal India's document said.
Suppliers that are successful in the tender will be asked to provide Coal India with a minimum quantity of 1 million mt/year of imported thermal coal, starting delivery in April 2011 through to March 2021, adding up to a total of 10 million mt over the 10-year period of each supply contract.
Coal India could potentially purchase up to 25 million mt/year of coal under its long-term coal supply contract framework, adding up to a total of 250 million mt over the 10-year term of the CLTO tender, according to one market source.
Other market sources said the quantity of coal purchased in the tender could add up to tens of millions of tons.
India faces 142 million mt shortfall
India is looking to these long term arrangement because it wants to tie up supply agreements to manage the risk associated with the supply shortfall it is currently experiencing.
Indeed, India is facing a shortfall of around 83 million mt of coal in the current fiscal year, which is set to increase to 142 million mt in FY2011-12, according to Indian coal minister Sriprakash Jaiswal February 3.
Speaking at a coal conference organised by the Associated Chambers of Commerce and Industry of India (Assocham), Jaiswal said India's coal production was projected at 554 million mt in FY2011-12 versus demand of 696 million mt.
He added that the deficit was expected to increase further to 200 million mt in FY2013- 14. The minister informed the conference that a group of ministers, constituted early this month to resolve issues related to coal mining in "no-go" areas classified by the environment and forests ministry, would meet within three to four days.
Jaiswal said there was a need to permit mining in these areas to meet India's coal requirement.
"Nearly 600 million people in the country do not have access to electricity, and the government is facing tough challenges in meeting energy requirements. While our energy supply is met from various sources such as coal, hydro-power, oil and gas, nuclear and other non conventional energy resources, coal plays a predominant role in supporting our needs," he said.
203 coal blocks have been declared by the environment ministry as "no-go" areas, with environment and forest clearance refused to these blocks, which collectively hold around 660 million mt/year of coal resources.
India is planning to add 78,000 MW generation capacity by March 31 2012, of which 50,000 MW is coal-based. However, the country has been facing coal shortages over the years and has resorted to imports to fill the supply gap.
Return to top
Next page: Indian coal buyers wait patiently for lower spot prices