The twin threats from coal and oil prices
Higher imports of crude oil, coal may put pressure on India’s current account deficit
Global coal prices are hovering around $90 a tonne and that will show up in our import bill. Coal imports in value terms have increased more than 40% year-on-year in each of the last seven months. The chart has details. Tightened supply and better import demand from China have contributed to higher global coal prices for some time now.
For us, the coal import bill could well rise in the coming days. The ban on the usage of petroleum coke (or pet coke) in three states could mean that cement firms using the fuel as an input may resort to importing coal, an alternative to pet coke. This may translate to more coal imports. According to Madan Sabnavis, chief economist, Care Ratings, “We can expect coal imports to continue to increase which will pressurise the import bill.”
What compounds this problem is the fact that crude oil prices are also on a firm footing these days, and that’s hardly good news given that we import a huge portion of our crude requirements. “Surging crude oil imports along with other commodities like coal have put a pressure on India’s import bill,” says Upasna Bhardwaj, senior economist at Kotak Mahindra Bank. Higher imports of both (crude and coal) could put pressure on India’s current account deficit (CAD), which is expected to be at 2% of GDP this year versus 0.7% last year, added Bhardwaj who feels between them, surging oil imports are a larger concern from the CAD perspective. “We estimate that every $1 per barrel increase in the price of the Indian crude oil basket would bloat annual net oil imports and the current account deficit by $1.2 billion,” says K. Ravichandran, group head-corporate ratings, Icra.
The Organization of Petroleum Exporting Countries’ meeting this week would decide the course of crude prices in the near future. “While Brent can moderate towards $60 a barrel, it will still remain range-bound in the region of $60-62 a barrel,” says Sabnavis. For coal prices, investors should watch what happens in China, a significant market for coal.
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