Coal India to cut high-grade prices

Consumers are refusing to buy, as coal costlier than prevailing global rates

Coal India Ltd (CIL), the world's largest coal miner, said it might have to slash prices of its high-quality coal. The move comes at a time when consumers are shunning high-quality coal, which has become costlier than prevailing market rates globally. The paring of rates, if announced, will benefit cement and sponge iron companies.

Business Standard had on Tuesday reported about the narrowing gap between global coal prices and CIL's 'subsidised' rates. "We may have to bring down prices of high-quality coal corresponding to the A and B grades of the earlier useful heat value (UHV) system. That possibility cannot be ruled out," a top CIL executive told Business Standard. The A and B grades account for 18 per cent of Coal India's annual 435 million tonne (mt) production.

He named at least two large consumers of high quality coal, Damodar Valley Corporation (DVC) and Gujarat State Electricity Corporation Ltd (GSECL), that have raised objections to the prices they are charged by CIL. "DVC is fighting with Eastern Coalfields Ltd (ECL), asking for a revision in the prices contracted under the fuel supply agreement signed between the two. Recently, GSECL has also objected to the rates," said the CIL executive.

Under the grading system followed, there are 17 bands based on gross calorific value of coal. The top six bands with calorific value between 4,900 K cal per kg and above 7,000 K cal per kg have price range between Rs 1,140 a tonne and above Rs 4,870. With global prices declining from $120 a tonne in January 2012 to below $85 now, the prices of CIL's A and B grade coal have already become higher than international benchmarks. If prices are not brought down, even consumers buying C-grade coal are likely to start complaining, said the CIL executive. Similar concerns had forced CIL to bring down prices marginally in January 2012, when it had to abandon the UHV system of pricing and revert to the gross calorific value (GCV) pricing method. Under UHV, the company had created seven grades, between A and G, representing highest and the lowest quality, respectively. The current top six GCV bands cover top two grades of UHV.

Experts say Coal India should hold on to the current level of prices given the likely upward movement in global rates.

"Going forward, the international prices seem heading for a rise in the next three years, which may give CIL a cushion for a rise. For now, Coal India may be comfortable to hold on to the current level of pricing for such higher grade coal," said Dipesh Dipu, partner, Jenissi Management Consultants, a Hyderabad-based energy and resources-focused consulting firm.