Resilient Health of the Indian Coal Sector from Les Echos

In a surprising turn of events, the stock prices of India's state-owned power company, NTPC, and the mining group, Coal India, have surged this year, contrary to the expected decline in the coal industry due to environmental concerns. NTPC's stock rose nearly 80%, outperforming the Indian stock market index's 17% gain, while Coal India gained 55%, marking one of its best years.

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The robust performance of the Indian coal sector stands out, especially when compared to the struggles faced by its global counterparts. Companies such as Indonesia's Adaro Energy (-37%), Australia's Whitehaven (-24%), and the U.S.'s Peabody (-12%) experienced significant declines in their valuations. Even Chinese companies, China Shenhua (+8.5%) and China Coal Energy (+8.8%), showed more modest gains compared to the two Indian giants.

The success of Indian coal companies can be attributed to heightened demand in the domestic market. Unusual weather patterns, including reduced rainfall, led to increased demand for coal-powered electricity, particularly in the third quarter of 2023. The need for air conditioning and additional irrigation due to the scarcity of rainfall contributed to higher coal consumption. Furthermore, floods in other regions reduced hydroelectric production, necessitating an increased role for coal-fired power plants.

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Globally, coal prices continued to decline in 2023 compared to the record highs of 2021 and 2022, but they remained higher than pre-COVID levels. Despite challenges faced by consumers in paying their bills, coal producers enjoyed robust profit margins. Both NTPC and Coal India capitalized on this favorable market environment.

Additionally, the Indian coal giants benefited from increased investor interest in the Indian stock market, which was perceived as more attractive than Chinese markets this year. Foreign funds and investors, including Goldman Sachs, BlackRock, Nippon Life, and Vanguard, increased their stakes in these two companies. Amid economic uncertainties in Europe and the United States, fund managers are increasingly betting on emerging markets, including the Indian coal sector, despite the growing emphasis on ESG (Environmental, Social, and Governance) standards for institutional investors.