Coal India likely to auction 30 million tonnes of coal in Jan-Mar quarter

Coal India (CIL) is expected to put another 25-30 million tonnes (mt) of coal under the hammer in the ongoing quarter.

This comes after e-auction volumes dipped following the decision to pump more coal into the coal-starved power sector through fuel-supply agreements (FSAs).

The coal behemoth has been able to book 54 mt of coal through e-auction till December (first three quarters) as against 79 mt in the similar period of the last fiscal year, registering a 31.65 per cent dip.

On the other hand, its offtake via the FSA route to power plants increased by over 12 per cent. “We have signed new FSAs of 32 mt recently. As more coal gets routed via the FSA route, e-auction volume will be low,” a senior company official said. However, this executive told Business Standard production in January-March was expected to be substantial, which will leave Coal India with more to offer in auctions.

“It is expected that another 25-30 mt of coal will be offered this quarter on the auction platform,” the official said.

Coal consumers in the non-power sector have long been complaining about scarcity because most of this fossil fuel is being routed to feed coal-starved thermal power plants.

Coal India’s production, as well as offtake, was hit in December owing to industrial unrest in its key production zones in Jharkhand and Odisha and cyclones, which disrupted production and supply lines. Besides, the availability of rakes from the Railways also constrained the company from supplying coal.

South Eastern Coalfields (SECL), its most important subsidiary, registered a 13.1 per cent fall in production in December at 12.52 mt while Mahanadi Coalfields, the second-largest subsidiary, registered a 3.2 per cent dip at 13.05 mt. These two subsidiaries account for more than 45 per cent of Coal India’s production.

Sales were low at 52.77 mt, which is a 1.2 per cent fall compared to December 2017-18.

However, in the next fiscal year, the e-auction volumes are expected to dip further.

“Given the limited buffer for e-auction due to strong demand in fuel-supply agreements and low production growth, we expect e-auction volumes to fall to a four-year low at 60-65 mt in 2019-20,” a report from broking firm Prabhudas Lilladher stated.

According to a coal consumer, coal demand in China was affected in the recent past because it focused on LPG — an alternative to coal. Restrictions on coal import were imposed, leading to prices declining globally. “Indian buyers, on the other hand, took a wait-and-watch approach, awaiting clarity on price movements arising out of the Chinese government’s move,” said Deepak Kannan, managing editor, Asia Pacific of Thermal Coal, S&P Global Platts.

E-auctions directly add to Coal India’s bottom line because the prices are often higher by at least 60 per cent over the notified price. Thus, effectively while the miner spends the same amount of money to mine the coal which is either sold as linkage or put under the hammer, it earns 20 per cent higher in auctions.

Prices in the e-auction, however, are expected to remain stagnant in the Rs 2,400 a tonne level backed by muted global coal prices.

According to S&P Global Platts, the price of FOB Kalimantan 4,200 kilo calorie per kilogram GAR (gross as received) — which is imported in huge volumes by both India and China — has declined almost 22 per cent since October 1, given the sagging demand in China and improving supply in Indonesia.