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Will India Be Able to Fill China’s Growth Void for Coal Imports?

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China’s coal imports fall

Before 2009, China (FXI) was a net coal exporter. However, low global coal prices increased China’s coal imports significantly. Within four years, China became the world’s (ACWI) largest coal importer, with imports topping 260 million tons in 2013. Then, things started to change. The government became concerned about air pollution and introduced import taxes on coal and other quality control measures. This caused China’s coal imports to fall by 10% in 2014.

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In August, China imported a total of 17.5 million tons of coal—a decline of 17.7% month-over-month. For the first eight months of 2015, imports have fallen by 31.4% YoY (year-over-year). Slowing economic activity and strong hydropower generation are the major reasons for China’s reduced coal imports. Policy changes in favor of using cleaner energy sources have also affected coal consumption. Coal shipments have fallen due to stricter new quality inspection norms at Chinese ports.

India’s coal imports rise marginally

India’s thermal coal imports, on the other hand, increased by 2% YoY to 18.2 million tons in August. According to Viresh Oberoi, CEO of mjunction services, the rise of 2% is due to “increased availability of domestic coal as well as less demand during monsoon.” According to Oberoi, “coal imports, all categories, will remain [the] same as the previous financial year and we are looking at around 240 million tonnes for 2015–16.”

India’s coal demand is expected to rise considerably going forward. It will be driven by the government’s “power to all” initiative. About one-fourth of India’s 1.2 billion population still doesn’t have power. However, the bulk of the increased demand will likely be met by increased domestic production. Still, many analysts contend that the land acquisition and other problems plaguing India will lead to more dependence on imported thermal coal going forward.

This could be positive for dry bulkers such as Diana Shipping (DSX), Navios Maritime Partners (NMM), Scorpio Bulkers (SALT), DryShips (DRYS), and Star Bulk Carriers (SBLK).

The SPDR S&P 500 ETF Trust (SPY) provides exposure to the broader industry.

Meanwhile, Goldman Sachs Group has cut the price forecasts for coal through 2018 on weaker China coal imports and India’s increasing domestic production.

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