IB Net Payout Yields Model

India to Import More Coal as Domestic Prodcution Continues to Struggle

Interesting news from India on the coal front. Further signs of the value in having commodity assets with the growth of India and China. The Telegraph highlights the growing demand for imported coal as an issue with coal production in India. At least this time its production, but we all know that demand will surely grow. These reports how India is likely to remain behind the curve. Maybe they should make domestic coal prices more expensive and hence the local production might just magically increase.

The increase from 59mt in 2009 to 65mt in 2010 to 81mt in 2012 doesn't seem overly aggressive, but in a market where you're now competing with a global recovery and China importing massive amounts of coal. Any additional pressure will spike prices for any remaining production. Coal India seems to have aspirations for the global energy stage, but for now they remain in the minor leagues. This other article talks about them looking to invest over $2B in overseas assets, but it appears they should focus more on their domestic production.
  • The gap between demand and domestic production is expected to increase to 81 million tonnes (mt) in 2011-12 compared with the initial projection of 51mt. Domestic production, estimated at 681mt in 2011-12, may come down to 630mt.
  • In 2008-09, the country imported 59mt and in the current financial year, import is projected at 65m
  • Excessive delays in statutory clearances for projects, problems of land acquisition and lack of rail transportation facility are cited as the prime reasons for this shortfall.
  • Domestic coal is available at 50 per cent lower price than imported coal.
Our favorites remain Alpha Natural Resources (ANR), Cloud Peak Energy (CLD) and Puda Coal (PUDA). All 3 should benefit from the global growth in imported coal for various reasons.


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