India's surging demand for thermal coal to draw in 1 to 2 million tonnes of Russian supply for the first time in 2011

 India's surging demand for thermal coal will draw in 1-2 million tonnes of Russian supply for the first time in 2011 to compete with South African and Indonesian coal,Indian importers and Russian exporters said.

Although Russian coal is likely to remain a minor part of India's projected 140 million tonnes of imports for 2011/2012, India has become a key growth market and has started to import Russian material for the first time this year, Russian exporters said.

So far this year India's biggest trader importer, Adani Group, has bought two capesize cargoes of Russian coal, a few smaller traders have booked several panamax cargoes and others are in talks for 2011 supply with Russian sellers.

"Around 1-1.2 million tonnes of Russian coal could go to India this year," one major Russian exporter said.

Other Asian buyers such as South Korea and Taiwan will currently pay higher prices than India, he said and China is also likely to pay more when buying resumes.

Indian traders importing a variety of coal origins estimated that up to 2 million tonnes of Russian coal could be imported this year.

"About 2 million tonnes is a reasonable figure because that equates to only one capesize cargo every couple of months, but it all depends on how competitive Russian prices are with South African and Indonesian coal," said a source at Coal & Oil, one of India's biggest trade importers.

Most of India's thermal coal imports since 2005 have come from Indonesia with a smaller proportion from South Africa but this year the rising cost of Somali pirate attacks on bulk vessels and low Pacific freight rates has prompted Indian importers to diversify their sourcing.

Russian coal coming from Pacific ports avoids the pirate hot spots in the Indian Ocean.

Traders taking trial cargoes of Russian coal into India said they are looking at placing this into state utility tenders where a broad range of coal qualities are acceptable rather than to cement or sponge iron makers who have tighter specifications.

"We are not the only ones looking at coal origins which don't carry the risk and cost of piracy," a trader at Indian importer Comtrade said.

"From Australia, the cost of the voyage and the insurance to east coast India from Newcastle has just now become competitive with South Africa - it's actually $2-3 cheaper on a delivered basis than from Richards Bay."

"Our first Australian panamax coal vessel loaded in the first week of April but capesize cargoes would be even cheaper - we spotted the opportunity and took it," said an official at Indian trader Knowledge Infrastructure.

Several Indian importers said they had either already bought or were in negotiations to buy, Russian coal.

India's biggest trader importer, Adani, in March bought its first shipment of Russian coal.

India's roaring economy is sucking in huge amounts of coal and Indian buyers are turning to the widest number of suppliers for the cheapest possible fuel.

"There's huge demand for the lower-grade coal from India - whatever we could produce, India would buy, but lack of rail capacity is restricting the ability to export," one South African exporter said.

Russian suppliers have been seeking a new outlet for lower-grade coal since China halted buying last November.

"For Russian coal we are engaged in serious discussions with one of the biggest exporters now because the lower-grade Russian coal...is very attractive to India which has huge demand for this coal," the Knowledge official said."

"We are looking at Russian coal seriously and the voyage from Russia's Pacific ports of Vanino and Vostochniiy to east or south India is a relatively short, so cheaper route," the Comtrade official said.

Another Indian trade importer, who asked to remain anonymous, and buys large tonnages from South Africa and Indonesia, has already brought in Russian coal to India and is in talks to take up to 1 million tonnes in 2012.

PRICING IS KEY

Some of India's biggest trade importers said they have already cut back on South African imports because Indonesian coal is up to $10 a tonne cheaper on a delivered basis.

If Russian coal is to become a regular source of supply into India it must be priced competitively against Indonesian material, they said.

"The lower energy content Russian coal has to be priced competitively against Indonesian for the Indian market, because that's what it's closest to in quality," said another Indian trader who has signed a term deal for Russian supply.

"Nobody in India is going to pay a premium for Russian coal, India is an extremely price-sensitive market," he said.