One of the key sectors which highlights what has gone wrong with India's economy is the power sector. The latest data from the CEA shows power output dipping YoY in October, with growth in the year to date a tepid 1.4%.
This is partly due to a weak industrial sector. But one of the reasons it wasn't particularly robust heading into the macroeconomic slowdown was because power availability was so poor in the first place.
That said, the situation is not disastrous for all forms of generation. Coal burn has generally been pretty good YoY, not withstanding the weaker preliminary numbers for October.
Even better has been output from the private sector, where several large projects have come online. While profitability has been bad, the poor environment has not stopped them from producing electricity.
Most of the generation gains in the private sector has been due to several large projects expanding output using imported coal. The chart on the left shows output from the Indian Fiscal Year to date from key coal importers, with the Adani and Tata plants in Mundra making huge gains.
Results for some other producers has been more mixed. JSW Energy, for example, has cut back power output, with poor demand and a weak currency impacting their ability to buy and burn coal.
These mega projects came online around this time last year and their is much less capacity growth in the pipeline for 2014. So it seems that India will be less supportive of the seaborne thermal coal balance in 2014 for the year as a whole.
That said, some of the more recent trends in inventory positions has been encouraging notwithstanding slower generation. Coal inventory in days of use has been coming down fairly quickly in the last month or so, to now sit at around 12 days.
As the chart left shows, this is still much higher than this time last year. But the
rate of destocking appears unsustainable.
To be sure, there has been a noticeable lift in power plants with very low inventory. Again, this is no where near as bad as previous periods, but the rate of change is appears unsustainable.
Finally, it appears stocks of imported coal have come down quite a lot in this sample. This doesn't include the IPPs included in the chart earlier, but it does suggest that those coal plants that import coal as a supplement to domestic coal have been destocking imports quite quickly.
At present, anecdotal demand suggests Indian appetite for coal imports is bad thanks to currency related problems that have plagued importers all year. But if current demand/supply trends persist, they are probably going to have to come back to the seaborne market in a more meaningful way.
Destocking by indian buyers hasn't stopped prices from improving, largely because demand from European and now-Chinese buyers has picked up. If these destocking trends persist, it seems that India will probably be added to that equation in a couple of months.
This is probably better news for lower rank coal rather than the main traded indices. Indeed, Indonesian producers have been looking to redirect tonnes from stressed Indian producers into China for Q4. If Indian demand comes back, lower-CV coal should perform quite well.
