In anticipation of a looming shortage in the domestic supply of critical thermal coal, Indian power plants increased their monthly thermal coal imports in August 2023. Energy intelligence firm Kpler reported an 8.5 percent month-on-month rise in India's thermal coal imports, totaling 12.30 million tonnes (mt) during the month. However, on an annual basis, inbound shipments were down by 17 percent.

This surge in imports during August followed two consecutive months of decline. During the month, power demand consistently exceeded 200 gigawatts (GW) and reached a peak demand of 236.6 GW, marking a 21 percent increase over the previous year.

As of August 31, the total coal stocks at mines, domestic coal-based (DCB) plants, and in transit stood at 86 million tonnes.

Kpler Lead Major Dry Bulks Analyst, Alexis Ellender, explained that "stronger demand and a tightening of domestic supply supported Indian thermal coal import demand in August, which edged higher month-on-month." The increased power demand, coupled with reduced hydropower generation due to weakening monsoon conditions, contributed to this trend. Total power generation in August rose by 13 percent, even though hydropower generation decreased by 6 percent. This increase was achieved by ramping up thermal power generation and a smaller increase in nuclear power. However, domestic coal supply experienced seasonal weakness, with production in August hitting a ten-month low of 68.37 mt, albeit still higher year-on-year.

The Power Ministry highlighted that, against a requirement of 404 mt for H2 FY24, only 397 mt of domestic coal availability is expected.

In addition, Kpler data revealed that metallurgical coal imports grew by 10.54 percent year-on-year to 5.56 mt in August, reflecting robust momentum in crude steel production and the manufacturing sector. On a month-on-month basis, imports declined by 13.26 percent last month.

This increase in metallurgical coal imports corresponded with strong growth in crude steel output and India's manufacturing Purchasing Managers' Index (PMI), which reached a three-month high of 58.6 in August. The surge in manufacturing demand drove firms to increase their buying levels and rebuild their input stocks at one of the highest paces in over 18 years of data collection.

Earlier this month, the Power Ministry directed DCB plants to import 4 percent of their coal by weight until March 2024. This decision was made as the gap between consumption and receipt at these units reached approximately 6.3 million tonnes in August, the highest in FY24 and the calendar year thus far.

The ministry noted that despite an increase in domestic coal supply during Q1 FY24, it fell short of meeting the requirements in August. The gap between coal consumption at DCB plants and the receipt of domestic coal amounted to about 2 lakh tonnes per day. Imports partially filled this gap, preventing coal stocks from reaching critical levels.