Coal India anticipates higher sales as imported coal and pet coke prices rise

The recent surge in international coal prices and pet coke may prove to be a boon for Coal India as it can now expect increased sales, particularly of the higher coal grades, to both the thermal and non-thermal consumers.

Imported coal prices, late June onwards, surged by over 30%. This month, imported coal of 6,000 GCV (gross calorific value) costs about $ 65 or Rs. 4348 a tonne on an average while pet coke surged by 73%. During January, pet coke was priced at $ 53 a tonne which has now increased to $ 92 or Rs. 6153 a tonne. Compared to these, Coal India's coal of a similar grade is priced at Rs. 3,000 for both the power and non-power sectors.

"Following the increase in imported coal prices and the government's push to increase sales of indigenous coal, consumers now will be interested in higher purchases of Indian coal", a senior Coal India official told Business Standard.

According to the official, the company is now considering modification of its e-auction calendar as well as the mix of coal grades offered in the auctions to meet the requirements of coal based power plants in the coastal belts as well as the cement and sponge iron segment.

A joint meeting between railways, port authorities and thermal power companies has paved the way for Coal India to send high as well as low grade coal to the ports from where deliveries to the consumers can be made either through inland waterways or the maritime route.

Also, higher offtake will imply Coal India increasing its production to meet the set target as the pithead stock situation will ease. During April-July, Coal India had lagged behind by six% to its targeted production of 172.72 million tonne (mt). The offtake situation was further dismal as only 89% of the 196.45 mt target could be achieved. Now, with import substitution a possibility for Indian coal buyers, the situation may improve.

Data from Motilal Oswal showed that Coal India's average monthly e-auction realisations from higher coal grades has been hovering between Rs. 2,505-3,044 a tonne during April to June this year as the coal monolith put 17.66% of the total 26.3 mt under the hammer.

"Higher grade allocation of coal in the auction is likely to increase following the recent changes in the imported coal and pet coke prices as non-power sector will try to purchase more indigenous coal", Dhruv Muchhal, an analyst with Motilal Oswal told this newspaper.

However, e-auction realisations had declined to Rs. 1,227 per tonne in June this year from Rs. 1,447 per tonne in May, on mix and lower premiums. The premium over notified price was down from Rs. 246 each tonne to Rs. 187 for every tonne over the same period.

A report from Motilal Oswal stated that Vedanta will be substituting imports completely.

Mucchal opined that rising pet coke prices too will bring some of the customers back to high-grade coal.

Coal Consumers Association of India (CCAI) is also of the opinion that Indian companies may shift to import substitution of higher coal grades now that the global prices have increased and Coal India is improving its quality.

"There may be an increase in demand of indigenous coal as Coal India has improved its quality of despatch as well as sending crushed coal. The rise in prices of imported coal will fillip it further", Subhasri Chaudhuri, secretary general of CCAI told this business daily.

Sharp increase in coal imports by China amidst its declining production is stated to be the key driver of the recent global thermal coal price increase. In June, China imported 21.8 mt of coal which is 31% higher when compared to the similar month of 2015 while it decreased its production by 17% in the same month under consideration.