CRISIL Research expects consumption of non-coking coal to clock a compound annual growth rate (CAGR) of ~5.4% to ~1,076 million tonne (MT) in fiscal 2023 from 826 MT in fiscal 2018. This would be driven by a 6.5% CAGR in coal-based power generation. Domestic supply is forecast to log a CAGR of 7% to 931 MT from 664 MT between fiscals 2019 and 2023. The growth will ride on increased production from Coal India Ltd (CIL) and commissioning of large captive coal blocks such as Pakri Barwadih, Parsa East and Kente Basan (15 MTPA each), primarily allotted to PSUs. Consequently, the share of imports in non-coking coal consumption is forecast to fall to 13.4% in fiscal 2023 from 19.6% in fiscal 2018. In absolute terms, non-coking coal imports are estimated to decline to 145 MT in fiscal 2023 from 162 MT in fiscal 2018.

Power sector imports are projected to cross ~75 MT by fiscal 2023, driven by demand from imported coal-based plants as their plant load factors (PLFs) improve following growth in power demand. However, non-power sector imports are expected to decline to ~70 MT due to improvement in domestic supply post linkage auctions and development of key captive blocks allocated to the non-regulated sector.

Growth in steel production is expected to push up demand for metallurgical coking coal to 65 MT in fiscal 2023 from 51 MT in fiscal 2018, logging a CAGR of 5%. However, domestic supply of metallurgical coking coal is estimated to remain low in spite of logging a CAGR of 9.5% to 19 MT in fiscal 2023. Consequently, the share of imports is forecast to remain high at 85-87% over the next five years. In absolute terms, coking coal imports are expected to increase to 58 MT in fiscal 2023 from 47 MT in fiscal 2018.

CRISIL Research expects domestic coal prices to increase 10-12% between fiscal 2018 and 2019, led by hike in prices of non-coking coal for both power and non-power sectors by CIL from January 9, 2018 by 12-15% across grades. It has also introduced an evacuation facility charge of Rs 50 per tonne for all its consumers who source coal by rail or road. We do not expect any further rise in auction prices in fiscal 2019 as the recent price hike has spurred concerns of an increase in power tariffs. Moreover, narrow margins for the non-power sector and the government’s focus on increasing domestic consumption leaves little room for any further price hike.