The fundamentals impacting Indian coal imports look more promising

Klaveness Research frontpage week 34

Indian coal production has recorded a negative growth of 3% in the first 4 months of the 2017 financial year (FY) which starts in April, after recording a positive growth of 3% in the 2016 financial year.

The thermal generation has recorded a positive growth of 3% so far in the 2017FY. While the growth is down from a 5% growth in the 2016FY, it is considerably better than negative growth of 3% in domestic coal production. The supply/demand balance for coal has thus tightened so far in the 2017FY.

Graph of Indian Coal Output vs. Thermal Generation and Indian Coal Stocks

A clear indication of a tightening balance is seen in the inventory data. The days worth of inventory at 111 thermal power stations monitored by India’s Central Electricity Authority has decreased sharply and is now at 8 days on average. These are the lowest inventories since December 2014.

Graph Indian Cement Production and Indian Coal Import

The general activity level in India took a hit from the demonetization introduced at the start of November last year. If we use the data for Indian cement production as a proxy for the activity level we can clearly see the negative effect between November and March. It now looks like the growth is normalizing and we thus expect Indian coal demand to pick up after the monsoon season.

The latest customs data for India is for May which recorded a 2% growth. Judging by trade flow data it looks like the import in June and July were down about 8% YoY while August looks to be almost on par with last year. (Klaveness Research)