LAUNCESTON, Australia, Aug 20 (Reuters) – India's coal imports appear headed for another strong month in August, raising the question as to why the usually cost-sensitive market hasn't scaled back purchases given a surge in prices to the highest in nearly seven years.
Total coal imports may reach 17.7 million tonnes in August, according to vessel-tracking and port data compiled by Thomson Reuters.
This figure may be revised as it becomes clearer when ships will arrive and discharge their cargoes, but the August imports are likely to be more or less in line with the 17.4 million tonnes imported in July, which was the strongest monthly outcome so far in 2018.
This is despite prices for thermal coal rising to the highest in 6-1/2 years, with the Australian benchmark Newcastle cargoes trading above $120 a tonne recently, taking the year-to-date gain to around 18 percent.
The gain in prices has been largely driven by strong Chinese imports, partly because of output restrictions at domestic mines and partly because of high demand caused by a recent heatwave.
Previously Indian coal imports, especially for thermal grades used to generate electricity, have been thought to be sensitive to price, and likely to decline if prices moved rapidly higher, as they have done this year.
But Indian imports have been on an upward trend in recent months, despite the rising prices.
An easy answer as to why is to point to the recent difficulties state miner Coal India has experienced in transporting the polluting fuel from pits to power plants.
But as Tim Buckley, director of energy finance studies at the Institute for Energy Economics and Financial Analysis (IEEFA), pointed out in a recent note, there is more to the situation.
Data from India's Central Electricity Authority show that coal imports for what are termed on-grid power plants, i.e. those that supply power to the network, are actually declining, falling 14 percent in the June quarter.
So, as far as thermal coal imports for the power sector are concerned, the price signal is working insofar as they are declining as prices rise.
However, as Buckley notes, a large part of India's coal imports are used by consumers other than on-grid power plants.
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