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Coal India auction to miss spark on low power demand Q4 of FY18

After 76% rise in Q3, prices may fall in Q4

Avishek Rakshit  |  Kolkata 

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Coal

After a 76 per cent increase over the average notified price in e-auctions during October-December last year, might see auction prices falling as demand from the sector is expected to remain muted in the fourth quarter (Q4) of the current financial year.

Analysts are of the view that demand usually declines in the winters and with stepping up its sales, the country’s generators would be returning to near-normalcy latest by mid-February.

“In turn, this is going to affect demand from the sector in the e-auctions,” an analyst from Motilal Oswal said.

In November 2017, despatches to the sector rose by 9.1 per cent to touch 40.9 million tonne (mt) against the despatch of 37.6 mt in the year-ago period.

Backed by robust demand from this sector, special forward e-auction prices rose by 35 per cent over the notified prices of the coal grades in November while for the Q1 to Q3 period, the increase over notified price stood at 25 per cent.

According to sector analysts, the average e-auction prices during the Q3 period would have hovered at more than Rs 2,100 a tonne, but in Q4, it is likely to fall to Rs 1,800 a tonne.

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“Trend in Q4 would depend upon the trend in the core sector and Index of Industrial Production growth numbers. However, allocation of fuel supply agreements to independent producers holding purchase agreements and further action on linkage auction would dampen the spot trade volumes,” said Debasish Mishra, partner at Deloitte Touche Tohmatsu India LLP.

Last December, 10 private producers obtained a 27.18 mt annual linkage from the Maharatna company.

Earlier, officials, too, had conceded the fact that e-auction sales volume as well as prices may get hit if linkage agreements are prioritised as the demand for coal in the auctions would fall.

E-auctions directly add up to Coal India’s bottom line as the prices are often higher by at least 20 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 the auctions.

“Till now, around 80 mt of coal has been put up in the auctions and in Q4, it is expected that another 20-30 mt will be routed through this route”, a official said. However, amid the projection of tepid demand from the industry, the cement and steel sectors might come to the miner’s rescue.

During November, auction prices for the non-segment rose by 52 per cent over the notified price, which was the highest in any given category of coal auctions. The demand was primarily led by the cement manufacturers on account of the uncertainty around petcoke.

Mishra said the steel and cement sectors may drive demand in the forthcoming coal auctions in the non-category if prices are lower than global coal and petcoke prices. “Also, there are signs of improving industrial activity, which would lead to increased electricity demand and hence demand for thermal coal,” he said.

Edwin Yeo, managing editor-coking coal and metallurgical coke at S&P Global Platts, however, believed India’s dependence on imported coking coal, which is primarily used by the steel industry, will continue despite allocating the requisite black diamond in the auctions.

First Published: Sat, January 06 2018. 21:55 IST
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