Why are Indian aluminium, steel industries on brink of crisis?

Hyderabad: Indian aluminium and steel producers are facing severe coal shortage as the supplies have been diverted to coal-based thermal power producers, who are trying to meet the peaking power demand from the manufacturing sector. This situation has led to an increase in coal procurement costs as imports have become increasingly competitive as several countries are facing the same crisis. Additionally, monsoon slows coal production, and since this year, showers continued until early October, which has hit the coal output. Experts believe that the stagnant local coal production and surging costs of coal imports (Australian thermal coal prices surging 3-4 times) means India’s coal shortage could continue over the coming months.

Besides other importing avenues, India is getting a portion of Australian coal stockpiles from China, which were lying in warehouses along China’s coast for months, uncleared by customs following Beijing’s unofficial ban last October. China has sought its top coal mining companies to boost production, and power producers to step up coal imports to ease supply constraints. China has refrained companies from directly resuming imports from Australia, its second top coal supplier after Indonesia.

India’s Central Electricity Authority (CEA) recently warned that coal reserves at over 50 per cent of the country’s power generation plants could burn out soon as a post-pandemic surge in manufacturing spiked demand for power and caught power producers unprepared to tackle the crisis.

India’s aluminium industry, which runs captive power generation units to meet its electricity requirements, has complained about the coal crisis, and appealed to the government for immediate resumption of coal supply against secured linkages for sustainable industry operations.

The Federation of Indian Mineral Industries (FIMI) too warned the Coal ministry that the coal shortage has created a precarious situation for coal consumers, mainly for the aluminium and steel industry and could lead to factory closures if the situation is not addressed.

It is learnt that Coal India has taken certain measures to restrict coal supply to non-power power producers and this ad hoc decision has brought down the aluminium industry to a standstill and the industry has been left out with no time to take any mitigation steps to continue operations.

Aluminium is a highly power-intensive industry where coal accounts for almost 40 per cent of the production cost and in order to reduce the dependency on the grid, around 9,000 megawatt of captive power plants have been established to meet their critical power supply needs. Without coal, these captive power plants cannot be operated, and power cannot be supplied, thus impacting the entire production.

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