Indian Coal Buyers Scared Off By A Weak Rupee Leave Top Coal Exporting Nations Such As Indonesia In A Fix

Indian buyers have reduced coal imports and are refusing to take deliveries of shipments that have already arrived at Indian ports, as the rupee’s slide against the dollar has driven up the cost of imported coal, while top coal-exporting nations such as Indonesia suffer from a fall in demand in India -- one its key export markets.

India buys about a fifth of Indonesia’s total coal exports and the recent slump in purchases from India has compelled Indonesian exporters to seek alternative buyers or to offload the fuel onto the spot market, where orders are taken and delivered immediately, Reuters reported, citing Indonesian industry officials.

“Some buyers have cancelled contracts or sought to renegotiate contracts, because now it’s actually cheaper for them than fulfilling their obligations,” Indonesian Coal Mining Association’s commercial committee chairman Pandu Sjahrir told Reuters.

According to Sjahrir, suppliers are left with three options -- renegotiate with buyers, sell the cargo in the spot market or take buyers to court for failing to fulfill obligations under the purchase contract -- but sellers usually take the spot market route.

Indonesia, which exports about $2 billion worth of coal a month, is battling the same issues as India, such as a falling currency, foreign capital flight, high current-account deficit and high inflation.

“Deals are still being done,” Ben Lawson, chief development officer at Indonesian coal producer Apple Coal, told Reuters, referring to Indian purchases of Indonesian coal. “(But) many contracts are being renegotiated or delayed.”

India depends on imported coal to meet more than half of the country’s domestic power demand and its growing appetite for coal is adding to the country’s clout in influencing global coal prices, according to a report by Energy Aspects Ltd in June.

However, very few Indian buyers of coal have hedged against the risk of a fall in the currency, and are unwilling to shoulder the additional cost burden, causing coal cargoes to pile up at Indian ports.

The stockpile of coal in five major government-controlled ports in India has crossed about 3.5 million tons, Punit Oza, an official at Klaveness, a ship operator based in Singapore, told Livemint.

“Some ships destined to India are being diverted mid-route with the seller looking for other markets,” an official in a coal-importing company based in New Delhi told Livemint.

Reduced coal imports will hit power producers as well as steel companies. Although international coal prices have dropped due to surplus stock and reduced purchases by China, the weak rupee, which has depreciated 13.07 percent since the beginning of this year, has driven up the price of coal for Indian buyers.

In the long-term, the Indian government is considering reducing coal imports by increasing domestic production, which would help lower India’s soaring current account deficit.

“The government is very keen that domestic production (of coal) improves. The policy is to maximize production of coal so that imports of coal is reduced. And if they (imports of coal) reduced to that extent, your CAD will improve,” India’s Planning Commission member B.K. Chaturvedi told Press Trust of India in August.