Below is the transcript of Deepak Kannan’s interview with Menaka Doshi and Senthil Chengalvarayan on CNBC-TV18. Menaka: We have seen a continuous decline in coal prices not just in the past few months but over the past couple of years. What is the current outlook on coal? A: The demand has been quite muted. We should understand that India and China are the major buyers along with South Korea, Taiwan and even Japan. A lot of things are happening in China and India this year. China is trying to restrict its imports and also trying to boost its domestic production, it is trying to boost the price for its domestic coal and that is having significant impact on the international coal prices at the moment. The prices are down significantly this year. India has a coal issue, we have a lot of vessel congestion at some of the ports in India and then there is shortage of railway rakes to transport the coal from the ports to the power plants. There is growing demand in India for coal but Coal India which is the major supplier is still falling short of production target. So, what it means is India is reliant on imported coal for the time being. However, there are a few issues to be sorted out in terms of logistics. Senthil: Will India keep a floor on coal prices then? A: India has been price sensitive because electricity tariffs are not linked to the coal prices yet. Whereas the China if there is demand they can push up the price. So, this year what we are seeing is China is not importing as much as it should have or it has historically. While India is still buying but they are keeping the prices at a subdued level. Although there is demand from India this is still having no major push towards rising prices. Menaka: Can you walk us through what the supply surplus is globally at this point in time in terms of coal? A: There is plenty of supply for instances talking about an unrelated market South Korea utilities usually buy their coal through tender and one of the utilities sought one million metric tonne of coal and they got offered seven million metric tonne so you can see the amount of supply that there is for each enquiry you will get around 10 offer. So, everyone has coal to offer but there are not many buyers. Menaka: Any numbers that you can put to the over supply globally? A: For instance China usually buys around 300 million metric tonne of coal each year and this year they have cut down by around Rs 25-30 percent so rest of the tonnages is still being offered in the market. Menaka: I was reading about some potential supply shutdowns or plant shutdowns in the next couple of months in order to restore some degree of balance between supply and demand? What are you picking up on that front do you see prices bottoming out anytime soon? A: Can’t say really prices are bottoming out because many analysts feel that there is still room for coal prices to go down. Like some of the recent reports have indicated that coal prices especially if you are talking about the newcastle coal which is the 6,300 kilocalories gross as received (GAR) coal it is expected to touch around USD 60 from the current USD 65 level. Still there is bit of room that the analysts see, there is a bit of a downside that analysts see. What this is doing is four things; lots of suppliers to think about maintaining their cost level and they are putting on hold their expansion project. Recently we saw that some of the major miners have afraid that they won’t produce for the next three weeks in Australia because of the muted demand. This kind of strategic initiatives are being implemented now to battle this environment of weak prices. Menaka: Is there a direct correlation between falling oil prices and falling coal prices as well? A: Falling oil prices is good news for producers and that will help them in their production cost and also provide a buffer for them to lower their selling cost further. This is a kind of support that they have in terms of correlation between the oil and the coal prices. Menaka: If prices fall even further, since you study the Indian market, do you see a chance that India demand might edge up a little bit because there is a difference in quality between imported coal in India and the kind of coal that Coal India supplies. So, would you say that there might be a commensurate move up in India demand? It might not make up for the lack of Chinese demand but there could be a move up in India demand? A: In the near to medium term we expect Indian demand to pick up. In 2015-2016 Indian import is expected to touch around 200 million metric tonnes from about 160 million metric tonnes currently. So, it is expected to move up but we also have coal ministry of India saying that they want to ramp up Coal India’s production. In the near to medium term we still see India is a significant player in the import market. Menaka: Despite that increase in demand as prices move lower you don’t see a floor to prices as yet? You are saying that we could see yet another USD 5 drop in prices from the current USD 65 level? A: It might not fall as much as it has fallen this year. It might be range bound with a downward bias I would say. Menaka: Are you seeing many Indian power producers or basically industrial groups rushing to book import supplies right now given where prices are? A: There are several enquiries but given the logistics issues many deals are getting hampered because they can get the vessel to the port but the port has around 42-45 days of waiting time and they have to bear the demurrage cost. Even if they discharge the cargo at the port they cannot move it to from the port to the power plant because they don’t have railway rakes to move it. So, all these things if addressed then we can see all these enquiries getting converted into deals. Read more at: moneycontrol/news/commodities/falling-oil-prices-is-good-news-for-coal-producers-platts-_1243843.html?utm_source=ref_article
Posted on: Thu, 04 Dec 2014 17:07:06 +0000
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