India in grip of coal shortage and power crisis, steel prices expected to surge

Tuesday, 12 October 2021 11:02:25 (GMT+3)   |   Kolkata

Faced with a mounting shortage in domestic coal supplies, soaring prices and risks to electricity generation can lead to production cuts by steel producers and increases in prices of finished steel, SteelOrbis has learned from industry circles in India.

“Secondary steel mills and standalone sponge iron producers may have to face production cuts as they rely on non-coking coal for their operations,” financial services and rating firm ICRA has said.

Over 70 percent of total electricity generation capacity in India is based on thermal coal, with several reports indicating that at least 20 coal-based power plants have been shut down as stocks of coal have fallen to zero and others have coal stocks equivalent to two to four days of consumption.

According to officials at steel mills including Jindal Steel and Power Limited (JSPL), coal prices are now almost four times those prevailing a month ago and, though integrated steel mills have coal stocks to maintain production for now, higher input costs would have to be passed on to the consumer through an increase in finished steel prices.

The government has identified the cause of the coal shortage as:

·         An unprecedented increase in demand for electricity due to revival of the economy

·         Heavy rains in coal mining areas during September adversely affecting coal production as well as the despatch of coal from mines

·         Increase in prices of imported coal to unprecedented high levels, leading to a substantial reduction in power generation from imported coal-based power plants, leading to more dependence on domestic coal

·         Non-building of adequate coal stocks before the onset of monsoon

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