India has the potential to be the saviour of the global thermal coal market amid plentiful supply and a likely fall in demand in developed countries, but a sustained boom in imports on a par with China is unlikely, Macquarie said Wednesday.
Its estimate that India's coal imports will rise 30 per cent in financial year 2012 to around 107 million tonnes comes against the background of growing expectations Asia's third-largest economy will be key to dictating the direction of coal prices in the years to come.
But India's lower per-capita power consumption, older infrastructure, lack of economic incentives to long-term electricity supply and much smaller industrial sector will mean its coal demand will lag far behind neighbouring China.
"On typical metrics India has the potential to be the saviour of the seaborne thermal coal market, but we still think market expectations are too high," the Australian bank said in a commodities report on Wednesday.
Macquarie added that Indian electricity consumption of 800 KWh per capita put it far behind other big developing economies, particularly China, which consumes 3,500 KWh per capita.
"For GDP and electricity generation for China and India, and the differences are stark. For the past 10 years China has seen electricity generation grow at rates higher than GDP, where Indian consumption has underperformed," Macquarie said.
Other analysts had touted India as increasingly key to determining global prices, while traders point to the country's growing requirements of particular grades such as lower-quality Indonesian material and higher-specification South African coal.
Domestic coal output has failed to keep pace with capacity growth in the power sector in India, where energy production falls far short of the demands of a fast-growing economy and an increasingly affluent population.
Macquarie said India's thermal coal imports would rise to 120 million tonnes this year and reach 171 million by 2017, while in China estimated imports will rise to 209 million tonnes over the next five years.
But Macquarie said by the end of this decade, India's move toward self-sufficiency in coal would mean imports would tail off.
India plans to spend $3-billion (U.S.) on upgrading its railways around its major coalfields, freeing up 300 million tonnes of coal annually, the bank said.
Before then, India's domestic coal output, which currently meets around 80 per cent of demand, is unlikely to rise fast enough in order to reduce reliance on imports, India's main producer said Thursday.
India has an installed power capacity of nearly 211,000 megawatts, up 48 per cent since 2007, largely because of the construction of new coal-fired power stations.
(Additional reporting by Malini Menon in Delhi)