Tata Steel, the largest Indian importer of Russian coal in the first quarter of the year, will stop buying the commodity in a sign that Vladimir Putin’s invasion of Ukraine has made it more perilous to do so.
The Mumbai-based company pointed to the “uncertainties” over the supply of Russian coal, which traders and brokers said India had stepped up purchases of before the war because rival shipments of Australian coal were becoming too expensive.
The move by Tata, which uses coal for steelmaking, is significant because it underscores the challenge of mitigating shortages that have already disrupted India’s power supply. The country relies on coal for 70 per cent of its electricity generation and coal stockpiles at power producers have fallen to almost half their average levels for this time of year.
Just over 20 coal-fired power plants have been forced into maintenance, data from India’s Central Electricity Authority shows, as a shortage of supply is compounded by an unseasonal heatwave in the country.
Tata Steel imported 617,000 tonnes of Russian coal in the first three months of the year, according to data provider CoalMint, taking delivery of 246,000 tonnes last month. These orders were made before the invasion of Ukraine.
“To ensure business continuity, we have sourced alternative supplies of raw materials as transactions with Russian suppliers and bankers at present come with a lot of uncertainties as a result of international sanctions imposed on Russia,” said a spokesperson for Tata Steel.
Despite the pressure to shore up supplies, Russian exports — which take about a month to arrive in India — slowed to 420,000 tonnes in March, and are predicted to drop to 124,000 tonnes in April, down from a recent peak of 1.1mn tonnes in February, according to Kpler, a commodity data firm.
Although the need for Russian coal is likely to increase, analysts said potential payment issues stemming from international sanctions and the steep cost of shifting the commodity long distances were curbing purchases.
“It is not a question of self-sanctioning, but rather whether Indian buyers are financially able to make payments for the coal with Russian counterparties due to economic sanctions,” said Matthew Boyle, lead dry bulk analyst at Kpler.
Although Russia and India have been discussing local currency payment arrangements, which would sidestep sanctions regimes, no scheme has been unveiled.
India has emerged as the most willing buyer of displaced Russian oil to shore up its supply ahead of peak summer demand. India’s finance and foreign ministers have defended the purchases.
Two of Russia’s largest export markets, the EU and Japan, have banned Russian coal, while India and Russia had signed an agreement last October to expand their coking coal co-operation.
An executive at a dry bulk shipping company said Russia was offering discounts of 20 per cent on its coal, but shipping to India would account for 10 per cent to 12 per cent of the total imported cost.
“There are suggestions that India will get some discounted Russian coal,” said Satyadeep Jain, equity analyst at Mumbai-based Ambit Capital focused on mining, metals and cement, but “we’ve not seen that significantly yet”.
