India’s dependence on overseas coal is set to increase in the coming years but the price impact arising out of imported dry fuel would be manageable, says a Citigroup report.

The country is grappling with acute coal shortage, hitting various sectors especially power generation.

In a research report, global financial services major Citi has said that “higher seaborne prices (of coal) are manageable“.

Noting that coal imports are viable, the report said the recent weakness in rupee has resulted in lesser demand.

“We estimate the cost of generating power using imported coal at current market prices at Rs 3.7/kwh versus merchant power prices at Rs 4-4.25/Kwh. This implies that the break-even price would be $100-110/t (6,000 kcal),” it noted.

Further, Citi has estimated the cost of power generation using e-auction coal at Rs 3.6/kwh (at current market prices) and linkage coal at Rs 2.1/kwh.

According to the report, imported coal volumes fell to 10.3 million tonnes in April and are reported to be tracking lower again for May.

”... we believe India’s reliance on imported coal is set to rise, given structural issues affecting domestic supply such as clearances, logistic constraints and production disruptions (strikes, weather),” it said.

The demand-supply gap of coal touched 161.5 million tonnes in the last fiscal.

Coal India, that accounts for more than 80 per cent of domestic coal output, produced around 436 million tonnes of the dry fuel in 2011-12.

Citi’s analysis suggest that demand for thermal coal should grow at a CAGR of 13 per cent (FY11-15E) driven by rising demand from the power sector - expected to grow at a 14 per cent CAGR.

“Our power analysts believe that 61 GW of coal-based thermal power capacity is likely to be added during FY11-15.

Total coal demand (including coking coal) is expected to grow at a 12 per cent CAGR,” the report said.

Related Topics