6 Coal Insights, November 2014

COAL mARkET funDAmEnTALs

Tamajit Pain

Seaborne steam coal prices remained firm in November reacting to production cut announcements by

some miners, industry sources said. South African coal (6,000 kcal/kg

NAR) prices rose to $66 per ton FOB on November 19 compared to $64.60 per ton on October 31. Australian coal (6,300 kcal/kg GAR) prices rose to around $64.20 per ton FOB on November 19 from $61.75 per ton on October 31, according to information available with Coal Insights.

Indonesian coal (5,900 kcal/kg GAR) prices declined marginally to $60.60 per ton FOB on November 19 compared to $61.00 per ton on October 31. Prices of Indonesian coal (5,000 kcal/kg GAR) increased marginally to $48.80 per ton FOB on November 19 from $48.70 per ton on October 31.

A trader said prices had actually gone up a little over the past few days in a knee-jerk reaction to a couple of production cut announcements. However, those volumes are not really enough to make much of a dent in the massive oversupply globally.

In the European market, cargoes for delivery in January to Amsterdam, Rotterdam and Antwerp (ARA) were trading at $74 per ton. Prices have remained firm due to mild

$45 / Ton

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South African Coal (6,000 kcal/kg NAR) Australian Coal (6,300 kcal/kg GAR)

Indonesian Coal (5,900 kcal/kg GAR) Indonesian Coal (5,000 kcal/kg GAR)

Steam coal price FOB South Africa & Australia

temperatures in Europe, depressed demand for coal in major markets and continued oversupply, traders said.

In the Australian market, prices declined on weak Chinese demand. Cargoes for delivery in December from Australia’s Newcastle terminal were trading at $64.20 a ton, while February cargoes were down to $64.10 a ton.

“Chinese thermal coal stocks remain at very elevated levels, dampening hopes of a strong winter restock,” several analysts said.

China is the world’s biggest coal consumer and accounts for about a quarter of Australia’s coal exports.

Thermal coal inventories at Chinese power plants and ports were equivalent to 41 days of consumption as of November 10, which is 13 days more than the same period last year, according to Macquarie. Demand

is also showing little sign of improvement.

This is the fourth consecutive month of negative year-on-year coal consumption growth from July to October, analysts said.

India aims at 1 bn tons outputBack in India, the country’s new coal secretary said coal production in the 2015-

16 fiscal will rise by at least 120 million tons (mt). Prime Minister Narendra Modi’s government has asked Coal India, the world’s largest miner of the fuel, to more than double its output to 1 billion tons by 2019 to feed existing and upcoming power plants.

Modi has promised round-the-clock power to all Indians by 2022 and recently announced that the nationalised coal industry would be opened up to allow private firms to compete with Coal India, which accounts for 80 percent of the country’s output. Declining shipments to India would drag on global coal markets grappling with oversupply as top consumer and importer China tries to shift towards cleaner fuels.

Coal generates three-fifth of India’s power, but a shortage of the fuel means millions still go without electricity and power cuts are common. Around 60 of India’s 103 power plants had enough coal for less than a week’s usage as of November 2 due to lower supplies from Coal India.

Imports of coal have been surging as a result, equating to about 1 percent of India’s economy. Coal and coke imports rose to 183 mt last fiscal year, and the market estimated earlier this year that the domestic shortage would range between 200-220 mt by 2015-16. Analysts were also sceptical the country would be able to end imports soon.

“India’s reliance on imports is not going away anytime soon. Obviously coal demand will continue to mean imports are needed in India,” said an analyst based out of Mumbai.

Seaborne steam coal prices firm in November

30 Coal Insights, November 2014

sPECIAL fEATuRE

Coal Insights Bureau

The mining equipment industry’s fate is inextricably linked to that of the mining sector. Consequently,

lack of funding, tardy environment and land clearances have had a direct fallout, making the former grow at a sluggish 5-7 percent, say industry insiders.

The Indian mining sector contributes around 2 per cent to the total GDP in India. The value of mineral production in India was around `2,200 billion in financial year 2011-12 with coal and iron ore contributing almost a whopping 90 percent to the cache.

However, over the last couple of years, with iron ore mining activities stalled in Karnataka, Goa and Odisha and the coal scam putting a spanner in mine development, mining gear makers also started feeling the heat. Also, few coal blocks were developed

over the last five years or so due to lack of proper funding options.

But, at present, with the Coalgate issue firmly behind us, sources feel that even if not a bull run, at least moderate growth could be ahead for this sector, especially with the government keen to increase coal production, iron out the iron ore mining issues and, in general, inject a booster shot to the infrastructure industry.

They point out a few reasons to back their observation. One, the Planning Commission has estimated that around $15 billion would be invested up to financial year 2016-17 in the mining sector in India. and analysts expect this impetus will drive demand for mining equipment. Two, globally, countries like the US, Europe and China are looking to move away from coal to Greener sources of power generation.

However, the story is different in India

where the power producers till depend heavily on coal to fire up their boilers. Thus, the demand for coal would only rise northwards, boosting demand for mining equipment in the process.

Consequently, the mining equipment industry in India may grow from around $430 million in financial 2012-13 to about $600 million by 2016-17, according to Tata Strategic Analysis, Secondary Research.

Though a lot of machines are common to the construction sector, gear like rope shovels, motor graders, rotary drills, large excavators (below 35 tons), surface miners, long wall equipment, dragliners, continuous miners, dumpers, and dozers are typically required by mining companies in particular.

A key trend over the past few years is that competition has hotted up in the sector with the entry of global heavyweights like JoyGlobal, Caterpillar and a few others.

However, an analysts says, the overseas players not only play mainly in the premium range, their technology is also far too advanced for Indian mines.

They manufacture gigantic machines that have simply huge capacities while India’s mines are just not big enough to accommodate these!

As says Soumitra Mukherjee, Deputy Director, Sales (OE), JoyGlobal (India): “We do see a gap between the kind of machines JoyGlobal manufactures and the actual ones in use in India. This is a huge difference between the global and Indian scenarios.”

Corroborating the above-mentioned analyst, Mukherjee adds that mines in India are generally small, in the sense that these can yield 3-5 million tons against the global average of 30-50 mt.

Most mining gear makers have almost 90 percent exposure to the coal mining industry in India. Since coal production is primarily concentrated in the hands of the central government through its two monoliths, Coal India Limited (CIL) and Singareni Collieries Company Limited (SCCL), there are certain pitfalls here too, say industry insiders.

For instance, manufacturers have to pitch through a long-winded tendering process. Moreover, the government sector is price-sensitive and quality and technology are often sacrificed at the cost of the price tags of the machines.

Mining equipment makers gear up for turnaround

COvER sTORy

“We will help CIL achieve 1 bn tons output”

The Central Mine Planning & Design Institute (CMPDI), under the able stewardship of Chairman-cum-

Managing Director Amal Kumar Debnath has been picking up one feather after another in its cap. The latest being a record 24 percent growth in drilling in 2013-14. The organisation has been rather busy lately, providing key inputs to the Central Bureau of Investigation and the Supreme Court which were probing the recent coal scam. Importantly, it has also successfully evolved a methodology for fixing the reserve and floor prices of the captive coal blocks that will soon be auctioned off.

Debnath is credited with introducing several global technologies for the first time in the Indian mining industry and one can safely say that the country’s mining technology research is in very competent and safe hands.

After serving as director (technical) for years together, he took over as the CMD of CMPDI in February 2013. A staunch believer in the premise that India’s technical capability can match the best in the world, Debnath indulges in some plain-speak when he tells Rakesh Dubey & Arindam Bandhopadhyay of Coal Insights that CMPDI is delivering all the goods to the Indian coal industry in a most comprehensive, meticulous and scientific manner.

40 Coal Insights, November 2014

48 Coal Insights, November 2014

“Thorium is the future”

The present low per capita consumption of electricity in India,

a rising population and developmental aspirations necessitate large-scale requirements of energy, in which nuclear energy will play a key role along with coal and renewables. However, Diwakar Acharya, CMD, UCIL, while dispelling safety-related fears associated with nuclear plants, tells Arindam Bandyopadhyay of Coal Insights that India is in a unique position, having moderate uranium but abundant thorium reserves.

India’s energy sector is in the doldrums. At a time when coal supply is severely constrained, nuclear power – which was previously thought would replace coal someday – seems to have lost its appeal?

It is just a myth that nuclear power has lost its appeal. Let me inform you that today, in India, there are 20 nuclear plants, operating at an average availability factor of 90 percent.

The 1,000-mega watt (MW) Kudumkulum Atomic Power Project 1 has been synchronised to the grid (although it is presently facing some temporary technical snags) and the second unit is likely to attain criticality by year-end.

Besides, 4 more projects, each of 700 MW capacity, at KAPS and RAPS are likely to go on stream in 2015 and 2016 respectively. So does it still look like a subdued nuclear scenario in India?

Could you elaborate on the safety concerns

over nuclear power? How much of it is real and how much perceived?

Although nuclear power really has a good safety record and the highest standards of safety are maintained, lack of proper information and myths associated with radiation tend to make people sensitive to its safety issues.

Just to give you an idea of the level of safety standards being maintained in the nuclear sector, let me shift focus to my own industry – uranium mining, which provides the basic fuel, uranium, to the country’s pressurised, heavy water nuclear reactors. As you may be aware, the uranium ore available in India is of very low grade and, hence, external radiation levels are also extremely low.

Generation and dispersal of dust is controlled by automated equipment wet drilling and by water spraying on broken rocks and other dust-producing areas. Exposure to radon and its progeny are

controlled by providing optimal ventilation levels and by minimising the air residence time, in all our mines.

PPEs are religiously used by all employees and with a strict emphasis on personal hygiene. No employee is allowed to eat underground.

All our units have environment survey and health physics labs manned by teams of scientists from the Bhabha Atomic Research Centre (BARC). All related environmental and radiation parameters are continually monitored by these teams. Besides, safety training is regularly imparted to all employees. National safety awards won by us over the years stand evidence to our safety standards.

There have been reports of prolonged health hazards in villages lying close to UCIL mines. Could you help dispel doubts?

Reports on prolonged health hazards in villages close to UCIL mines are a

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Coal Insights, November 201470