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Indian Coal Shortages has Steel Producers Worried

Recent research on coal imports in India has worried the country’s steelmakers, which are already under pressure from the rise in iron ore prices and coal prices. According to the latest research conducted by Australia and New Zealand Banking Group Limited (ANZ), India may triple its coking coal imports within five years to meet surging demand from steelmakers and power producers.

Mark Pervan, the head of commodity research at ANZ, was quoted as saying that steel production in India might increase by about 10 percent a year in the next five to 10 years, driving demand for coking coal.

Over the last few years, India has been facing an acute shortage of coal, and power producers and steel mills are scrambling for imports.

Why the Shortage?

According to the Indian coal ministry, imports of coal are expected to increase to 80 million tons from 69.76 million tons last year. Market experts believe that the rising trend to import coal will ultimately force the steel companies to increase prices.
The Indian federal government has upped the figure of its estimated coal shortage, expected by March 2012. New estimates now put the coal shortage at 112 million tons, up from 83 million tons forecast in December 2010. The entire shortfall is likely to be met by imports.

Even though India’s domestic coal reserves are vast, the demand-supply deficit is high. A recent survey conducted by Research and Markets suggest that the demand-supply deficit of coal is estimated to grow at a CAGR of 17.2 percent till 2017. Exploration, technical, environmental and logistical issues have forced India to import coal.

Besides blending requirements, superior quality parameters and converging price trends of imported and domestic coal would lead to more imports. Indian companies have acquired overseas coal assets in Mozambique, Indonesia and Australia, but more efforts are required to reduce the coal imports. India’s coal production is forecast to increase to 554 million tons in 2012, more than the 533.12 million tons the country produced in the previous year.

The government has taken some steps to reduce the demand/supply gap. A new policy being drafted for auction of coal blocks is among the various other steps that are being taken to mitigate the shortfall. The coal ministry has been working on the auction policy that will replace the existing system of allocating blocks for over a year.

India is the third-largest producer of coal in the world, with the world’s fourth-largest reserves. Coal is one of the primary sources of energy, accounting for about 70 percent of the total energy consumption in the country.

Coal deposits in India occur mostly in thick seams and at shallow depths. Indian coal has high ash content (15-45%) and low calorific value. With the present rate of daily coal extraction in the country, the reserves are likely to last over 100 years.

By. TC Malhotra

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