New Delhi, Mar 6 (IANS): High coal inventory at power stations may continue to keep the domestic production and offtake levels under check in the near term, said India Ratings and Research (Ind-Ra).

Accordingly, users may resort to domestic coal over imported ones given the elevated import prices, especially for non-coking coal, supporting offtake.

"The proposition to allow Coal India Limited (CIL) to export surplus coal may offer newer offloading opportunities, subject to India's competitiveness in the international market,".

Notably, coal offtake improved 1.8 per cent month on month (mom) in January 2021 to 58.9MT, driven by a 4.4 per cent mom higher domestic power demand.

However, the offtake was lower 4.5 per cent year on year (yoy) due to the high inventory levels at power stations.

Nevertheless, domestic coal production continued to improve in January 2021 to 66.5MT, higher by 3.8 per cent on mom level but lower by 3.4 per cent on yoy basis.

"The output in 2HFY21 is likely to be supported by about 7 per cent yoy higher overburden removed in 1HFY21 from open cast mines due to a lower coal demand over 1HFY21."

According to Ind-Ra, with the formalised ban imposed by China on Australian coal imports, coking coal import prices remained subdued over November-December 2020, on the back of an oversupply in the global market.

"Since mid-January 2021, coking coal import prices spiked to 49 per cent ahead of the Chinese New Year holidays in February 2021, losing momentum thereafter with a dip of 11 per cent in prices up to end-February 2021."

"The prices were also partly supported by a strong demand from countries such as India, Japan and South Korea with improved steel sector performance, until the prices spiked up, leading to major importing countries taking a backseat and delaying their restocking requirements."

Besides, coking coal price movement will depend on China's import preferences for 2021 which are expected to become clear post Chinese New Year holidays.

Furthermore, since October 2020, non-coking coal import prices spurred up by 44-49 per cent up to end-February 2021.

"This was on the back of the increased thermal coal import quota by China from countries other than Australia, China's new supply contract inked with Indonesia and supply shortage in South Africa on the back of an extended maintenance shutdown at the port and the state-owned rail transport lines."

"In February 2021, though the supplies normalised in South Africa, the average import prices have seen a marginal correction of 1 per cent mom as the freight rates surged on the back of shortage of vessels. The elevated import prices may also provide CIL an opportunity to substitute imported coal with domestic coal."