"Between January and October, coal shipments to India dropped 7% y/y due to the increased cost of imports. Thermal coal demand has remained strong, particularly from the power sector, but domestic mining has not kept pace, forcing power plants to draw down inventories. In contrast, coking coal demand growth has eased following a decline in steel production amid low margins,” says Filipe Gouveia, Shipping Analysis Manager at BIMCO.
The cost of imported coal has increased due to a weaker rupee and higher coal prices. Prices have firmed due to increased demand following disruptions in the Strait of Hormuz. As LNG supplies have tightened, the EU, Japan and South Korea have boosted electricity generation from coal. Furthermore, Chinese imports increased at the end of the second quarter following a mining accident that led to mine closures for inspections and thus lower production.
Indian coal demand has firmed this year, driven by an approximate 9% y/y increase in coal-fired electricity generation. While electricity generation from solar and wind has also increased, the impact on coal demand has been minimal as hydroelectric generation has fallen due to a weaker monsoon linked to El Niño conditions. While, domestic coal production has increased by only around 4% y/y, inventories, rather than imports, have compensated and supported demand growth. By 1 November, 48% of Indian coal-fired power plants had critically low coal inventories.
“As the world’s second-largest coal importer, accounting for 17% of global coal shipments, India’s weaker import demand has weighed on the wider market. However, the impact has been particularly pronounced for the supramax segment, whose coal shipments to India have fallen 16% y/y. Panamaxes have fared better, with volumes falling only 4% y/y, as they increasingly competed with other ship segments for coal cargoes,” says Gouveia.
However, after several months of weaker shipments, Indian coal import demand appears to have firmed, with shipments rising 7% y/y in October. Critically low inventories have likely increased pressure on power plants to secure sufficient coal supplies, while power shortages may have further encouraged purchasing. In the coming months, high electricity demand, paired with the need to rebuild inventories, could support India’s coal import demand.
“Looking ahead, the International Energy Agency expects Indian coal demand to only grow by 2.5% in 2027. Although the country is expected to see rising electricity demand and industrial activity, a recovery in hydroelectric generation could limit gains. Indian coal imports are also expected to increase only slightly, as growing domestic coal mining may limit import demand,” says Gouveia.