MAC: Mines and Communities

A black future for coal?

Published by MAC on 2012-07-24
Source: Nostromo Research

The Indian example

Let’s talk about  the "black stuff" and address the purported case for digging up even more coal.

Indian coal cartoon

An article in the UK Mining Journal (MJ), earlier this month, cobbled together a mild dust-storm of statistics to back its view that the industry has a bright future.

According to the MJ, in much of the world this most-widely employed of fossil fuels is “on the slow burn”, and  India stands second only to China as a potential boom market for future sales of thermal coal.

India's reserves will last  for 108 years at current production levels, and it should become "the second-largest [global] consumer of seaborne thermal coal, growing from approximately 80Mt/y to 400Mt/y"by 2030 (1).

But now, compare that distinctly “bullish” prediction to the manifold woes for India's coal-dependent power output, summarised last week in an article published by Australia's Mining Weekly (2).

According to this, the amount of stockpiled coal now idled at India’s mine pitheads has reached around 70 million tonnes. That’s because there's not enough infrastructure to convey it to power plants, and precious little likelihood of the situation improving.

Moreover, there’s been “no growth” in supplies which do manage to get through to the utilities. 

For sure, Coal India Ltd (CIL) - which accounts for 80% of home requirements - has plans to increase output. But, even at full strength, this will add no more than 30 million tonnes to the mix - at least until 2013.

Inevitably the Indian government is looking to take up the slack through imports.  Its Planning Commission says these must reach 185 million tons by 2017  “in order to meet the increasing gap between demand and supply and achieve its energy generation targets”.

However, Coal Industry officials are far from sanguine about this prospect. They point out that India’s ports can handle only 54 million tonnes a year at present. Plans to expand the capacity would lift this figure by a mere 25 million tonnes – and as yet they haven’t even begun to be implemented.

So much, then,  for an assertion, made by Anglo American plc (as quoted by MJ) that ”continued increased demand from India and China, which imported 25% and 15%, respectively, more thermal coal in 2011 compared with 2010” has “helped grow demand from the Asia-Pacific region by 8%”.

That may be true but, in tonnage terms, it’s hardly anything to write home about.

Politics of Pricing

Little attention is paid by the experts, cited by the MJ, to pricing as the most critical determinant in the demand-supply balance that needs to be maintained if their broadly optimistic assertions are to be credited.

Bloomberg claims that thermal coal prices have markedly improved of late.  On the other hand the agency says that Indonesia – the world’s second biggest exporter of thermal coal – has recently cut its benchmark selling price to its lowest for two years.

In passing, it should be noted that this development is bound to affect the economic viability of Indonesia’s premier thermal coal producer, PT Bumi Resources, (part-owned by London’s Bumi plc).

That in turn will lead to reduced income for workers (and probably redundancies); limit availability of funds which should be allocated to displaced villagers and compensate for land destruction; and impact on the reserves it ought to set aside for reclamation and rehabilitation of mined-out areas. 

As to coal pricing in Indian markets (both in terms of national sales and importation costs) the issue has become a focus of heated domestic debate.

Last year, Tata threatened to cancel a contract for Indonesian imports of coal required to feed India’s largest proposed thermal power plant at Mundra, should the south-east Asian state impose a 20% tax on coal exports in an attempt to keep supplies “in country” (3).

According to Mining Weekly, India’s government is “ insistent that a price pool mechanism be adopted by CIL”, not only for domestically mined coal but also imports.

But CIL doesn’t like this idea at all, opposing a pool price mechanism “on the grounds that the landed cost of imported coal would be substantially higher than domestic coal and a pooled price would push up the price of coal in the domestic market".

CIL also argues that "not only would increasing the sale price of coal be politically opposed, several thermal power plants operated by provincial governments would not accept an increase in price as they [are] financially distressed and unable to pass on higher costs to consumers.”

Meanwhile, “the creation of a Coal Regulatory Authority with the power to fix prices has also been pending for several years with the required law still in the drafting stage”.

To summarise: an increase in Chinese and Indian demand for thermal coal  has been presented by a number of analysts as one of – if not the  main - “saving grace” for an industry under increasing attack by communities, environmentalists and climate change campaigners around the world.

Yet  it’s moot that Chinese demand will mount much further – at any rate, not while its GDP growth rates are set to slow considerably over the next year and more.

And in India, hundreds of thousands of people have risen in opposition  to new coal mines and coal-fired power plants, especially in the indigenous peoples’ state of Jharkhand, and in  the recent movement to halt Tata’s Mundra project in its tracks (4).

Ultimately, however, it may be economics - those damned economics - that sound the death-knell for this blackest of dirty global industries.

This article was written by Nostromo Research. It is covered by a Creative Commons Licence. Reproduction is welcome, with acknowledgment to the author



(1) "Coal: Slow burn", Mining Journal (13th July 2012): [subscription only]

(2) Ajoy K Das "Indian coal imports to rise to 185Mt by 2017, support infrastructure still missing", Mining Weekly, 17th July 2012

(3) Sierra Club India: Tata Mundra Breaks Coal's 'Contract'

(4) Clash intensifies over cost, impacts of giant Indian coal-fired power plant

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