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India joins power scramble
MATT WADE IN NEW DELHI
August 2, 2010

THE booming Indian economy faces an energy crunch that could send prices for key Australian exports soaring and deliver a long-term economic boost.

India's voracious demand for mineral resources has received less attention than China's, but some analysts believe its energy needs are reaching a critical stage.

The looming energy deficit has the potential to boost prices for several commodities, especially coal, Australia's biggest export.

The Australian economy is also likely to benefit from Indian investment in the mining industry.

Research by Arvind Mahajan, an analyst with KPMG in Mumbai, estimates India's coal shortfall will reach 189 million tonnes by 2015.

A separate report by Sanjay Mookim of Credit Suisse puts the deficit at 150 million tonnes by 2017.

Unless India can vastly increase domestic production, it will have to import large volumes to keep steel plants and power stations running.

"It is safe to argue that importing such large quantities of coal can be challenging for India and this could have a significant impact on global coal prices," Mr Mookim writes.

Mr Mahajan expects India will need to import up to 150 million tonnes of coal in 2015, or 154 per cent more than it imported in 2008-09.

Coal prices are likely to rise, Mr Mahajan says, especially if the global economy picks up and additional coal supply expected from Africa fails to materialise.

India is looking to coal-producing countries such as Indonesia and South Africa, but Australian coal will also be in strong demand.

Nik Senapati, the managing director of Rio Tinto India, believes Indian demand for Australian resources will be sustained.

"China is probably not going to grow at the same level for ever and India is definitely going to be demanding a lot more Australian commodities," he said.

"It will be slower but it will be longer term. Indian demand will definitely have a big impact on Australian resources."

The chief economist at Austrade, Tim Harcourt, says India "has gone under the radar a bit" and predicts its demand for coal "is likely to outstrip China's".

There has been a flurry of reports in the past month about Indian firms negotiating to acquire Australian coal assets and that trend is set to continue.

"Expect a lot of action from India on the trade and investment front," Mr Harcourt writes.

"If China's been a test match for Australia in terms of export growth, India is a Twenty20 game."

More than 70 per cent of India's electricity is generated by coal-fired power stations and its steel industry relies heavily on imported coking coal.

"Any country that exports coal is going to benefit, even if just because of the impact of higher pricing," an Indian analyst told BusinessDay.

Last month the International Monetary Fund forecast the Indian economy would expand at 9.5 per cent this year, and some analysts say the growth rate could soon hit double figures.

Australia is already a big supplier of coking coal for Indian steelmaking, which has doubled in the past five years. However, Indian steel production is forecast to rise further, from about 55 million tonnes to more than 150 million tonnes over the next five to 10 years, ensuring strong demand for Australia's high-quality metallurgical coal.

Industry observers believe there will also be much more demand for Australian thermal coal to fuel India's power stations. The Australian Bureau of Agricultural and Resource Economics has forecast India's imports of thermal coal will double between 2009 and 2015.

http://www.smh.com.au/business/india-joins-power-scramble-20100801-111iz.html