What’s behind the sudden decline in Indian coal imports?

India, the world’s second-largest coal importer and home to the fifth-largest coal reserves, plays a pivotal role in the global coal market. Historically, the nation has relied heavily on imports to meet its domestic power demands, as local production often falls short, particularly in high-calorific-value coal. However, coal imports plunged by 21.6% year-on-year in October to 22.9 Mt, marking a second consecutive month of decline, a surprising development given expectations of heightened energy demand for Diwali.

The primary driver behind this decline is the ramp-up in domestic coal production, led by state-run Coal India Limited (CIL) and other commercial players. Policies aimed at reducing coal imports by 2025-26 are taking effect. Between April and November 2024, captive and commercial coal mines increased production by 33% to 100.8 Mt, while CIL, which produces over 80% of India’s domestic coal, boosted output by 2.4% year-on-year to 471 Mt. This increased supply has made domestic coal cheaper, encouraging price-sensitive Indian buyers to pivot from imports.

Additionally, India has just come out of one of its longest and wettest monsoons, which have significantly impacted coal imports. The heavy rains on the West Coast, a major discharge region for larger Capesize vessels, caused delays and discouraged traders from scheduling shipments. Another factor is India’s growing emphasis on renewable energy. Hydropower and solar energy are increasingly complementing the energy mix, reducing dependence on imported thermal coal. A combination of these factors has culminated in November coal imports falling 29.4% year-on-year to 18.8 Mt, the lowest level since February 2022.

This decline in imports is also reshaping bulk carrier utilisation trends. From September to November, Capesize vessels accounted for just 28% of coal import volumes (-10 percentage points year-on-year), while Panamax vessels handled 48% (+15 percentage points year-on-year). Kamsarmaxes were more competitive than Capesizes for a large part of this period, making splitting opportunities a viable option for shippers. Additionally, the smaller shipment sizes ensured that vessels avoided logistical bottlenecks associated with long waiting times at discharge ports. While India is unlikely to completely rule out coal imports by next year, the growth in domestic production could significantly impact Capesize trade routes, especially from key exporters like Indonesia, South Africa, and the U.S. If this trend persists, it could reshape the dynamics of coal shipping and broader dry bulk trade flows.

By Vriddhi Khattar, Dry Bulk Analyst, Research.