Thursday, 28 April 2011

Piracy drives Indian coal importers away from West Coast.

Recent reports say that Indian coal buyers are looking to Russia and Australia for the much in demand commodity, because Somali pirate attacks on ships from South Africa and further west now involve higher risk and insurance costs that make the enterprise near unviable. The recent declaration by Lloyds that says the West Coast of India lies in a war zone will only reinforce buyers decisions, warn experts.

The move comes as analysts warn that Somali pirate attacks will widen, get even bolder, more organised and aggressive. "Given the amounts they have made recently, I would anticipate ever-better armed and trained pirate crews at the top end as well as a proliferation of wannabes at the lower end," said J. Peter Pham, Africa Director with U.S. think tank ‘The Atlantic Council’. Those in the business say that NATO actions in Libya will continue to divert naval resources away from the Indian Ocean, making sailing through this region even more hazardous. "NATO & EU NAVFOR were struggling with finding some slack to send some ships after pirates in the 'deep' Indian Ocean. After Libya, that's not going to happen," said Michael Frodl, founder and head of maritime risks consultancy C-LEVEL.

Indian coal demand has been increasing exponentially in recent times. More than half its electricity generation capacity is coal-based and growing as the country sets up more power plants to feed the never ending demand for power. Coal India, the world’s largest coal producer, supplies 80 percent of this demand, but its production targets this year have dropped 7 percent. The Government had said last month that Indian coal imports could shoot up 70 percent in 2011/12 to 142 million tonnes. Much of this demand has been traditionally fed by South Africa- close to a third of that country’s entire coal exports came to India last year.

But that is changing. "We are having to evaluate not just the least risky routes to take from South Africa to India but also the best Indian ports to discharge and also now, where are the least risky places to pick up a vessel to begin its voyage to South Africa," said an official at Indian coal importer Comtrade. With piracy hitting the Indian West coast, traders are looking at South and East India for unloading coal, and at Russia and Australia instead of South Africa to buy. Many importers say they have already done so."Piracy is a real and significant cost added to South African coal - around $2 a tonne. Given the quantities being shipped, this is a lot of money," the Comtrade official said. An official at Coal and Oil, a large Indian importer says that there are other factors that influence the decision. "Even the cost of bunker fuel at Richards Bay is higher than at Newcastle, so we're all looking hard at Australia and to a lesser extent, Russia."

Unfortunately for Indian importers- and not just of coal- security experts expect piracy to spread to the Southern coasts of India and Sri Lanka and east to Malacca. "I do expect to see more attacks on the Cape to Malacca as well as Cape to Bay of Bengal -- because we expect to see more attacks south of India and Sri Lanka," said C-Level’s Frodl. If this happens, buying coal from Australia may not help too much.


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