Apr 20, 2022
By: BI India BureauCoal inventories held by the Indian power plants remain tight at nine days’ worth of stock as of mid-April and it could result in power outages, a recent report by Japanese financial holding company Nomura has revealed.
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The report, titled ‘India: A power crunch in the making’, noted this coal shortage could lead to another “stagflationary shock” if the situation does not improve. Besides this, it could also result in diversion of coal from non-power sectors like aluminum, cement, steel, weighing on industrial output and this could increase the cost of electricity.
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According to a notice issued by the Maharashtra State Electricity Distribution Company Limited on March 31 — reviewed by S&P Global — the state has already temporarily curtailed electricity supply to segments of agricultural power consumers in the state.
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Nomura noted that the 9 day worth of stock is actually much lower than the average stock of 17 days held in April over the last five years. The report added that nearly 100 out of the 172 power plants in India have critical coal stocks, which means it is less than 25 percent of the normative levels.
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Nomura believes that the major reason behind this shortfall is the increased electricity demand due to reopening of businesses and the peak summer season. Besides this, the supply of coal has been hampered by the reduced availability of railway rakes to transport coal as well as lower coal imports.
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Global thermal coal prices have remained elevated as a result of the Russia-Ukraine conflict, which disrupted trade flows and crippled supply amid additional demand from Europe. As a result, imported coal has largely remained out of bounds for price-sensitive markets like India, S&P Global Commodity Insights said.
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High supply shortages were also recorded in Madhya Pradesh (9.67 MU), the union territories of Jammu and Kashmir and Ladakh (cumulatively 4.65 MU), Punjab (4.5 MU), Haryana (4.39 MU) and Jharkhand (2.29 MU), as on April 10.
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India had witnessed a similar crisis in October 2021 when the country’s stockpiles fell to the lowest point in years. Back then, India only had coal inventories worth five days.
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The government of India, since October, has been aggressively trying to increase coal production via commercial auctions, allowing sale of excess production, rolling auction and speeding up operationalisation of coal mines.
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