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Will Coal Industry be able to recover after COVID-19 in FY 2020?


Overview

● India being the second-most populous country across the world demands energy for its economic growth and development. The coal industry is primarily known for its source of energy. Coal India Limited (CIL), the public-sector enterprise is the world’s largest coal miner (producing about 600 MT annually), is liable for nearly 85% of domestic production.

● As per the Ministry of Statistics and Programme Implementation (MOSPI), the mining sector has an influence of around 14.4 % in the Index of Industrial Production (IIP) and it increased at a CAGR of 2.1 % from 2013 to 2020.


● When COVID-19 induced lockdown hit India there were major supply disruptions in the country and due to the closure of the coal mines the industry had suffered a loss. The first quarter of the fiscal year 2020 saw a fall in monthly mining IIP by nearly 20 % between April to September.

● With the ease of the lockdown gradually the mining has been able to keep operating during the COVID-19 crisis, companies have also had to accommodate and emerge.

● Coal resources have been found largely in West Bengal, Jharkhand, Bihar, Odisha, Chhattisgarh, Madhya Pradesh, Andhra Pradesh, Telangana, Maharashtra, and a few states of the North-Eastern Region.

Production of Coal

● Due to the outbreak of the coronavirus, the production anticipated for the fiscal year 2020 is slowed down. The total production of Coal for 2019 to 20 was forecasted at 810 Mte. Heavy inventory requirements and lower off-take of coal by end-user industries such as power, steel, and cement have affected demand and consequently manufacture of coal. Domestic coal production continued to decline on an m-o-m basis and a yo-y basis for the fourth straight month ended in July 2020. However, the off-take of coal increased in July 2020 due to the gradual easing of the lockdown period but declined by 8.3% in comparison to the previous fiscal year 2019.


Source: Mint

● In July 2020, Domestic coal production stood at 45.5 mt which is lower by 5.5% opposed to July 2019 and 3.8% opposed to June 2020. The Indian coal industry has a monopolistic structure with higher than 90 % of India’s generation collected in the public sector. Amongst the public sector companies, CIL accounts for the largest production with the entire coal production of nearly 80%. Coal India Ltd (CIL) declared temporary totals for August 2020 which shows a 7% y-o-y growth in coal production during August 2020.

● During the year 2018 to 19, CIL & its subsidiaries generated 606.89 MT. of coal obtained an off-take of 608.14 MT. with an increase of 6.97% and 4.8% over the preceding year, and achieved a gross sales of 140603 crores.

● Although the private sector is acknowledged to mine coal through the captive mining route, they have so far played a very inadequate part in the Indian coal industry. Their share in total coal manufacture from the fiscal year 2011 to 12 is only 9 % and has risen by only 3 % from 2005.

● In July 2020, CIL’s coal total production lowered by 0.5% as to June 2020. CIL’s coal despatch to multiple consuming sectors persisted stable in August 2020 compared to July 2020. Whereas, the previous year was higher by 9.3%.

● During the year 2019-20, the actual production during the year was 480.04 Million tonnes opposed to 498.51 Million tonnes (MT) during the corresponding period of 2018-19 and showing negative growth of 3.71 %.

● CIL and its Subsidiaries adjusted 44826.43 crores towards Royalty, Cess, Sales Tax, and other taxes. CIL has paid a total dividend of 8105.58 crores @ 13.10 per share, out of which the share of Govt of India was 5839.33 crores.

Demand and Supply of Coal

● From April 2020, the coal industry in India had witnessed a rise in the domestic electricity demand followed by supply due to the lockdown measures for the coronavirus pandemic. Coal-based thermal power production, which has the dominant share of 64% in total domestic electricity generation saw growth on a consecutive basis.


Source: S&P Global Platts, WorldSteel

● On the other hand, regardless of the rise in electricity demand, there is still a huge amount of inventories left with the coal-producing industries in India. This situation in the domestic market led to a sharp downfall in the import of coal from April to July 2020.

● The inactive demand from the steel sector before the pandemic led to a decline of 23% in June 2020 in the average coking coal import prices.


Source: S&P Global, WorldSteel

● The import of coking coal dropped by 39.9% to 10.7 mt between April to July. ad import of non-coking coal dropped by 35.7% to 38.8 mt during the same time.

● Consumption / actual supply of coal (including import) increased from 836.93 million tonnes in 2016-17 to 968.03 million tonnes in 2018-19. As per data provided by CIL/CCO, Demand for coal for 2019-20 was estimated at 1000 million tonnes against which, the actual supply of coal in 2019-20 up to December 2019 (provisional) was 695.49 Mte.

● As per CIL, the demand for coal for 2019 to 20, was expected to be 1000 Million Tonnes, whereas the domestic availability was assessed at 811 Million Tonnes. The break of 189 Mte was forecasted to be satisfied through imports.


Source: S&P Global, WorldSteel

● During the year 2019 to 20 up to Dec 2019, the actual domestic supply of coal was approximately 508.62 Mte. There has been a continuous increase in the entire consumption of coal over the years.

Consumption of Coal

● Consumption of coal by end-user enterprises also increased marginally from 54.2 million tonnes (mt) in May 2020 to 56.7 mt in June 2020. However, on a y-o-y basis consumption of coal in June was below 19.8%. Thus, though off-take and consumption of coal have shown marginal growth on m-o-m basis due to progressive rests in lockdown measures, generation of coal continues to fall even sequentially due to high inventory availability and more delayed than anticipated resumption in business activities. India’s per capita coal consumption is only 71% of the world’s average.


Source: EIA

  • In the future, the digitalization of the mining industry will support various emerging technologies. The industrial internet of things (IIoT) is a digital technology that can be particularly transformative. Strategically placed sensors connected to the internet can enable mines to gather enormous amounts of data in real-time. The data from IIoT sensors is extremely actionable, which helps the managers to make decisions that can improve efficiency, assure safety, reduce costs, etc.


Source: PeakOilNews

  • Electric and autonomous vehicles and equipment have been drastically impacting the mining industry and will continue to do so in the future ahead. As per a recent industry report, electrification and automation will be a $15 billion market by 2028.


  • The government of India has launched a new policy where it aims to increase transparency, competition, and participation of the private sector, under the regime of coal block auctioning. The government estimates more than Rs 33,000 crore of capital investments over the next five to seven years in this sector. As a result, mines whose rights have been purchased by a private sector for captive purposes can be transferred to another private sector which is taking over mines for non-captive purposes. This policy encourages commercial mining without end-use restrictions, which means there will be no restrictions on the sale or use of coal from mines.


  • As per the coal ministry, commercial mining of coal will be a significant move towards modernizing the coal sector and achieving the target of making India a $5 trillion economy in the future ahead.


Source: BBC

  • A report by Carbon Tracker stated that 60% of global coal power plants were generating electricity at a higher cost than it would have from sourcing via wind or solar energy. India has among the largest coal reserves in the world. But the quality of its coal is poor – because of high ash content, it produces less energy and more pollution per tonne.


  • In 1973 all coal mines handed over to the government-owned Coal India Limited where the government amended the law and allowed private companies in the power, steel, cement, aluminum sectors to mine coal for captive use.


  • In 2015, the Modi government passed a new law, allowing companies to openly bid for a scarce natural resource. India’s coal imports grew to 242 million tonnes in 2019 to 20. In June, the coal ministry declared the first round of commercial auctions, inviting bids for 41 coal blocks.


Source: Ikea

Summary

National Miner Coal India Ltd (CIL) will invest over Rs. 1.22 lakh crores on about 500 projects related to coal evacuation, infrastructure, project development, exploration, and clean coal technologies, to achieve 1 billion tonnes (BT) coal production by the year 2023-24 and make the nation Aatmanirbhar in Coal, said Union Minister of Coal and Mines Shri Pralhad Joshi.

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