Indian coal consumers look to Covid-19 relaxations

The 21-day lockdown, which was due to expire today, has been extended to 3 May, but some "select necessary activities" could be granted a conditional relaxation from 20 April, Indian prime minister Narendra Modi said today. Several states led by Maharashtra in western India had already announced extensions of their lockdowns to 30 April, while India's eastern state of Odisha become the first jurisdiction to extend its Covid-19 lockdown recently.

A fresh set of guidelines giving details of the conditional approvals from 20 April may be released by tomorrow. This has raised the hopes of some coal importing industries, such as sponge iron and cement producers, that they may be able to resume operations. These industries shut nearly all their manufacturing operations when the lockdown started on 25 March.

The sponge iron industry is not only looking forward to the proposed guidelines but also awaits stimulus measures for the industry, the executive director of the Sponge Iron Manufacturers Association Deependra Kashiva told Argus today, saying that small and medium enterprises are among the biggest employers in India.

"Sadly, there was no hint of stimulus in today's speech," he said, adding that he plans to raise his concerns at a video conference scheduled for tomorrow with top government officials in the steel ministry. "Some of the sponge iron mills may completely cease operations for now, and do not know how they will then continue to pay salaries."

His concerns are shared by other industry bodies that fear the drop in industrial activity will weigh further on the businesses and overall economy. This follows Modi's advice again today to employers to continue paying salaries to staff.

The Confederation of Indian Industry is hoping that the government will announce some support for industry, especially micro, small and medium businesses "to tide over this crisis".It said the extension of the lockdown gives the "government adequate preparation time to organise an orderly and safe restart of the economy" in the near future.

The Associated Chambers of Commerce and Industry of India today urged the government and the central bank to announce immediately a major package for saving industry, trade and jobs.

Seaborne coal, coke demand

The extended lockdown will weigh further on the seaborne coal trade as demand in India remains so weak.

Power plants are expected to keep operating at reduced capacities amid a drop in industrial consumption of electricity, which has contributed to a build-up in domestic coal stocks. This has also prompted the coal ministry to take steps to encourage increased domestic coal use at the cost of imports.

National coal-fired generation in March dropped by about 11TWh to 77.19TWh from a year earlier amid a drop in electricity demand, according to early preliminary data from the Central Electricity Authority.

Cement and sponge iron mills have delayed buying cargoes of petroleum coke and coal respectively, amid an uncertain outlook for restarting operations and demand for the end product.

Indian cement producers have lost more than three weeks of sales and production since the lockdown began. Companies are apprehensive that even if the lockdown is lifted completely from 4 May, it will take a few weeks for the demand-supply chain to normalise. The cement industry is estimated to be sitting on large amounts of unsold cement stocks that should be sufficient to meet market demand for well over a month.

The uncertainty around demand may keep most companies away from the seaborne petroleum coke market for the second consecutive month in May. The sudden closure of cement plants to comply with the lockdown forced companies to declare force majeure and seek deferments on coke cargoes that were either on the water or due for loading.

Once the lockdown is lifted, the cement industry may struggle to make fresh sales to dealers as most dealers are also sitting on large stocks. "Even if we supply them, there will be no immediate payment and our receivables will rise. The challenge is to ensure cash flow into the business," said an executive with a cement producer.

The lockdown resulted in large-scale loss of business in the April-June quarter, which is usually a strong demand phase as construction activity picks up before the arrival of the monsoon season.

The World Bank has sharply trimmed its growth forecast for India and projects that the country will grow at around 1.5-2.8pc in 2020-21, the slowest pace of growth in recent decades, and well below a previous projection that India's GDP growth would be at 6.1pc.

A total of over 10,300 confirmed coronavirus cases and 339 deaths have been reported in India to date, with Maharashtra, Tamil Nadu and Delhi among the most affected, according to government data. This has made it difficult for the federal authorities to lift restrictions, particularly as only around 200,000 people have been tested, a tiny proportion of the country's 1.3bn population.

By Saurabh Chaturvedi and Ajay Modi