India"e;s imports of thermal coal this year are set to rise to 100 million tonnes from around 90 million in 2011, despite a sluggish revival of post-monsoon spot buying and a slowing economy, suppliers and end-users said.

A structural need to make up a shortfall in domestic supply remains acute and this year"e;s imports would have been still higher if the Ultra Mega Power Plants built to take imports had come online this year, they said.

“India is likely to take over 20 million tonnes from South Africa this year, the monthly imports have been steady, and overall, 100 million tonnes imports in total looks achievable,” one producer said.

The shortfall between India"e;s domestic coal supply and coal demand will be around 192 million tonnes in the fiscal year to March 2013, according to the coal ministry.

Coal fuels 66 percent of India"e;s thermal power and the country aims to add 88,000 MW in the five years to March 2017.

But bureaucracy and rows over who will bear the cost of higher-priced imports for new power plants will prevent the country from importing all that it needs, importers and suppliers said.

Indian end-users and international suppliers were confident that 100 million tonnes can be achieved.

But Indian traders, including some of the firms who account for 70 percent of the country"e;s coal imports, were bearish and predicted a total of not more than 85 million tonnes because the economic slowdown has crimped demand in the cement and sponge iron sectors, they said.

Years of policy inertia has hit investments, slowed economic growth to a near three-year low and put India"e;s investment-grade credit rating in peril.

The slowdown has bottomed out but a full recovery requires tough decisions, Finance Minister P. Chidambaram said last week.

CONSUMERS CUT ORDERS

“Industrial growth is the problem, not the price of coal - the construction slowdown is hitting demand for sponge iron and cement, these sectors are not doing well so they are not buying as much as we expected,” a source at one of India"e;s biggest trader importers said.

“Many sponge iron plants have closed down and won"e;t reopen until the market picks up and many cement plants are operating at below capacity,” he added.

The bulk of India"e;s imported coal is low-grade material from Indonesia used for power generation but standard-grade South African is preferred for its consistent quality and reliability of delivery by the makers of cement and sponge iron.

Sponge iron, used by steelmakers with or instead of scrap metal, is made by directly reducing pelletized iron ore in a furnace with coal rather than in a blast furnace with much more expensive coke.

“The sponge iron market is not attractive at present, but demand should accelerate in the second half of the fiscal year and imports should top 100 million tonnes,” a sponge iron producer said.

STRONG AND STEADY IMPORTS

The subcontinent"e;s monthly imports have been steady all year with particularly strong figures for South African shipments, helped by low freight costs and a 20 percent slump in coal prices between January and June.

But the annual, incremental growth of 20 million tonnes or more which many suppliers had counted on will not emerge until 2013 until economic growth picks up, Indian buyers said.

“Indian coal imports for 2012/13 are likely to be between 80-84 million tonnes,” said Kameswara Rao, executive director of energy, utilities and mines at PricewaterhouseCoopers Pvt Ltd.

Several of the biggest trade importers predicted imports this year would be unchanged at 80-85 million tonnes.

“The traders underestimate every year how much India is going to import but there"e;s no doubt there has been some less buying by end-users,” a supplier to the Indian market said.

Several privately built Ultra Mega Power Plants on India"e;s coasts, intended to help reduce the country"e;s chronic power shortages, have been delayed.

The delays to these plants pushed back the large volumes of Indonesian sub-bituminous coal which would have been shipped under multi-year contracts.

But the heavily indebted state-owned power sector may import more, Rao said.

Last month, the federal government announced a bailout of the power sector under which regional governments would take on half of power distributors"e; short-term debt and convert them into long-term bonds.

“The power sector debt restructuring may itself not provide additional scope for imports. But many distribution companies will experience improved cash flow in coming months due to tariff increases already made, and that may help them import more coal,” Rao said. - Reuters

Source: Reuters