KOLKATA (miningweekly.com) – The Indian domestic coal market is showing divergent trends of falling production and a demand-supply gap at the aggregate level, coupled with falling offtake from bulk consumers.

The government’s policy of achieving ‘zero imports’ was also contributing towards skewing the market dynamics, members of the Coal Consumers’ Association and officials at thermal power companies have said.

These industry segments claim that divergent trends in the market can be gleaned from recent data available for the domestic coal industry.

For one, a Coal Ministry statement to Parliament said that India’s coal demand for the current financial year was estimated to be 884.87-million tons and that total domestic coal production was forecast to be 724.71-million tons.

The large bulk consumers said that this was an indication that even though some industry segments, led by large thermal power producer NTPC, decided to halt imports, many industrial segments would have to continue to resort to coal imports.

However, despite the demand-supply gap at the aggregate level, industry officials have pointed out that Coal India Limited’s (CIL’s) pithead stocks were still estimated to be 39-million tons and that the miner’s sales during the first eight months of current financial year – April to November 2016 – were 40-million tons lower than CIL’s internal target for the period.

CIL’s sales during the eight-month period were pegged at 340.30-million tons, compared with the 381.6-million-ton target for the period. The miner produced 323.6-million tons, against a target of 360.80-million tons. Therefore, CIL would have to produce an additional 274-million tons during the remaining four months of the financial year to achieve its production target of 597.60-millions, which industry officials claimed would be a tough ask, given the miner’s performance in the earlier months.

One of the primary reasons cited for the apparent conflicting trends of a demand-supply gap, low offtake and piling up of pithead stocks was logjams in the distribution channels.

Coal supply to thermal power plants during April to October 2016 was 216.5-million tons, down 3.7% over the corresponding previous period. While part of the decrease was attributed to lower electricity demand and generation, the fall in coal offtake by this sector was also attributed to the Coal Ministry advisory that all thermal power plants without long-term fuel supply agreements with CIL should source their coal requirement through the e-auction route.

Several thermal power producers claimed that sourcing coal through e-auction was not their preferred route, citing higher procurement costs, which they could not pass on to distribution companies given their existing power purchase agreements (PPAs).

It was pointed out that several thermal power projects ready for commercial production had concluded long-term PPAs with distribution companies, but that such electricity supply agreements were not financially compatible with the coal procurement strategy based on spot purchases.