Business Standard reported that the year has begun on a positive note for coal with prices showing a rising trend.
Outlook for the popular energy source is getting increasingly constructive thanks to optimistic expectations of recovery in global economic activity, and more importantly continued stellar role played by the two Asian giants, China and India.
Barclays Capital in a report recently said that “Continued strong import demand from China and India should support a premium in Pacific coal, while a broad-based recovery in other Asian countries will further support upside momentum.
1. Market drivers
This is a big change from the situation obtained in 2009 when the market was driven by weak demand in the Atlantic basin in the wake of recession experienced by major industrial economies. In addition, gas prices were attractively low in a market with oversupply. However, countries in the Pacific basin came to the coal market's rescue and turned key positive influencers. The strength of import demand from China and India saved the market from a near imminent collapse.
According to Barclays Capital there is hope 2010 will continue to register large import demand from Asian economies; and that the western countries would show broad-based recovery as is widely anticipated. In the event, coal price risks are skewed to the upside.
India is turning into a large producer, importer and consumer of coal. A significant part is used by the power utility sector followed by steel. According to a report of the working group on coal and lignite, the projected domestic availability of coal shall be 680 million tonnes against the projected demand of 731 million tonnes in the terminal year of the Eleventh Plan period that is, 2011 to 2012.
2. Supply-demand gap
According to the Ministry of Coal, the gap between demand and supply of coal during 2006-07, 2007-08 and 2008-09 as envisaged in the annual Plan was 53.4 million tonnes, 38 million tonnes and 60.1 million tonnes respectively. As per annual plan for 2009-10, the projected shortage of coal on all India basis is about 70 million tonnes.
According to experts, there is the possibility of supply bottlenecks re-emerging in the current year because infrastructure problems have not been adequately addressed in the exporting countries. As such coal will be subject to upside price risk.