Report says outlook in India is ‘finely balanced and uncertain’ despite resources industry’s high hopes

This article is more than 1 year old

This article is more than 1 year old

Thermal coal exporters face “significant risk” that demand from India will decline, a report by the Australian office of the chief economist says.

It also warned of long-term uncertainties in the market considered a “great hope” by miners.

The report, released on Friday, came as the resources minister, Matt Canavan, prepared to visit India to spruik the Australian resources sector. He argued India has an “astonishing” appetite for Australian thermal coal that could support “three to four new Adani-sized coalmines”.

But those comments appeared at odds with the conclusions of the government’s economic advisers: that while India and southeast Asia were seen by the resources industry as a “bright light” that could help sustain Australian thermal coalminers as industrialised nations pivot away from fossil fuels, the outlook in India was “finely balanced and uncertain”.

“While India is one of the great hopes for thermal coal exporters, alongside southeast Asia, it also presents significant risk,” the first paragraph of the report said.

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“If India’s thermal coal imports decline, there could be substantial implications for seaborne markets.”

These uncertainties were largely out of the control of Australian miners and policymakers.

This month India announced a plan to cut its coal imports by a third, counting on an increase in domestic production and in renewable energy output.

The growth of its domestic coalmining sector, and an increase in the uptake of renewables, were among the uncertainties cited by the chief economist’s report.

“In the long term, the outlook for thermal coal usage in India depends heavily on the prospects for other energy sources, particularly the pace of expansion in renewable generation in India,” the report said. “India has set itself ambitious renewable energy targets.

“The pace of India’s coal production growth will be the key driver of its future thermal coal import needs.”

The report’s suggestion that thermal coal exports from Australia to India would increase threefold – cited by other news sources as evidence that Indian demand could “supercharge the opening of Queensland’s Galilee basin” – was based solely on the predicted increase from the under-construction Adani Carmichael coalmine.

Demand for thermal coal is falling in north Asia – the destination for most Australian exports – and Europe and North America, and it is broadly expected this decline will continue in the coming decades.

As demand slows, particularly in China, the benchmark thermal coal price has sunk to a three-year low: US$61 a tonne.

The resources sector has repeatedly relied on International Energy Agency (IEA) predictions of growing energy demand for thermal coal in India and southeast Asia to offset reduced amounts sent to traditional export markets.

The argument being pushed by advocates of the thermal coal sector, that growth in these new markets could support new mines – or a new coal basin – ignores the more dramatic shifts away from coal in developed economies, analysts said.

Tim Buckley, the director of energy finance studies at the Institute for Energy Economics and Financial Analysis, said: “The hope was that India and southeast Asia might provide something of a cushion [for the thermal coal industry] on the way down. But this isn’t a gentle slide to oblivion.”

Buckley said solar power in India was three times cheaper than the assumptions used in the chief economist’s report, based on outdated IEA predictions.

“They’re underestimating the importance of low-cost renewable energy,” he said.

“Growth of thermal coal demand in India is financially challenged by the fact renewable energy is 30% cheaper, so what bank in their right mind would finance a new coal-fired power plant?”