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Indian coal import surge buoys Panamax owners

The recent firmness in India’s coal imports, which has been the main reason for increased rates in the Panamax market, is likely to continue as the Indian government’s plan to invest heavily in infrastructure will underpin domestic coal demand.

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Baltic Panamax Index (Source: Drewry Maritime Research)
Baltic Panamax Index (Source: Drewry Maritime Research)

Panamax rates have skyrocketed in 2019 and are likely to rise in the coming quarters, supported by strong demand for coal imports in India, according to analysis by Drewry Maritime Research.


“The demand for electricity in India is expected to expand at an increasing pace over the next five years. Even though the share of renewables and gas-fired power plants will surge, demand for non-coking coal will remain high because of the low penetration of gas-fired and renewable-based power plants. Meanwhile, the government’s focus on infrastructure development will generate additional demand for steel, in turn, increasing imports of coking coal.”


The major consumers of non-coking coal in India are power plants and the cement industry, while that for coking coal is the steel industry.

India's coal imports in 2018 (Source: Drewry Maritime Research)
India's coal imports in 2018 (Source: Drewry Maritime Research)

In her budget speech on 5 July 2019, the Indian finance minister proposed investing US$285B annually over the next five years on infrastructure – a surge of more than 150% compared with the past investment.


Drewry pointed out that the government has allocated the highest-ever budgetary support of US$12B to the highways sector. “In the past, such ambitious plans in India have failed to materialise because of a lack of funds,” the London-based consultants said. “However, the recent initiative is expected to be implemented as the government seeks to mobilise alternative financing resources, including an effective asset monetisation strategy.””


Major Indian infrastructure initiatives planned over the next few years include the dedicated freight corridor, urban transport projects through the PPP model, affordable housing projects, commitment of fresh investment in electric vehicles and an impetus on a national-level water and gas grid through the ‘One Nation One Grid’ initiative to contain the inefficiencies and loses in power and water distribution.


According to Drewry, the above-mentioned initiatives will result in a massive surge in demand for steel, cement and power. “The spurt in demand for cement has already generated huge requirements for non-coking coal imports this year,” it explained. “India’s cement production has increased to more than 337 Mt in FY 2018-19, a rise of more than 13% from the previous financial year, despite a policy paralysis in the run-up to the national election concluded in May 2019.

India's coal imports (Mt) (Source: Drewry Maritime Research)
India's coal imports (Mt) (Source: Drewry Maritime Research)

“It takes about 200 kg of coal to produce 1t of cement. Therefore, to produce 337 Mt, the Indian cement industry consumed 67 Mt of coal in FY2018-19. With the new government firmly in place, with emphasis on infrastructure, the demand for cement is expected to surge over the next few years. Additionally, with increased industrial production, coal demand for power generation will also expand.”


Moreover, Drewry analysts added, domestic coal production has been increasing at a very slow pace, leaving power companies to depend on coal imports. For instance, domestic coal production increased 5% until May 2019, but imports surged 29%.


“The inability of domestic coal producers to match domestic demand will keep imports high over the next few quarters. However, the Indian government plans to commercialise coal mining, which will boost domestic production and cut imports; this will take time and until then coal consumers will have to rely on imports for a large part of their requirements,” concluded Drewry.


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