CIL clocks net sales of nearly ₹4,700 crore through e-auctions in Q1FY22.

Shobha Roy Kolkata | Updated on August 13, 2021

Rates of import substitution increase as international coal prices spiral upwards

The surge in international coal prices and the steady rise in demand for coal from power and non-power sectors is set to push up volume sales of Coal India Ltd (CIL) on e-auction platform. Premiums over notified value are also likely to improve further thereby boosting the company’s bottom line.

For the quarter ended June 30, e-auction sales nearly doubled to 30.2 million tonne (mt) from 15.8 mt in the same period last year. The company clocked net sales of close to ₹4,700 crore through e-auctions in Q1FY22.

During April-July 2021, CIL’s e-auction allocation stood at 35.5 mt, under five auction categories, registering a growth of around 29 per cent against the same period a year ago.

Also see: Coal India reports 53% rise in Q1FY22 consolidated net profit at ₹3,174 crore

Under exclusive auction for non-power consumers, the allocation was 11.8 mt during the first four months of the current fiscal, logging around 69 per cent growth. This would help consumers of the segment increase their blending percentage and cap the coal cost in the production of their respective products, the company said.

The power sector clocked a nearly 38 per cent growth under special forward auction at 11 mt during the referred period, against 8 mt last year.

Import substitution

Internationally, coal prices are at a 10-year high. Indian coal, after adjusting for calorific value, is at a discount to international prices.

“With international coal prices spiralling upwards with no signs of let up, consumer preference for domestic coal is seemingly gaining ground. The effect of ascending cost of coal sourced from overseas was evidenced in the country’s coal importers booking 70 per cent of the total quantity of 2.4 mt offered to them under their special spot e-auction during April-July’21. The add-on over the notified price under this category was 52 per cent,” CIL said.

For the month of July’21, almost all of the 1.6 mt offered to coal importers under exclusive special e-auction window was booked.

According to Rupesh Sankhe, Analyst, Elara Capital India Pvt Ltd, the volume offtake for CIL could come from import substitution given that the domestic power demand still continues to be low.

Out of the total imports of 170 mt of non coking coal, around 65-70 mt cannot be replaced with domestic coal as the high ash content (in domestic coal) makes it unsuitable for usage in certain designs of boilers. So, the addressable market is around 100 mt. CIL, which had achieved an import substitution of around 17 mt last year, has a target of scaling it up to 100 mt (over a period of time).

“Coal India has realised that volume offtake will come from import substitution because domestic power demand is very low, (particularly) in terms of the inventory that they have. Last year they have done 17 mt of import substitution. Their target is to take it to 100 mt. They will get the benefit of higher volumes. Some power companies import and CIL is trying to get state level gencos and other small gencos to replace it with domestic coal. But most of these companies have medium to long term supply agreements with international companies so volume growth will happen gradually because they will also get benefit of lower cost,” Sankhe told BusinessLine.

Higher price realisation

Even while the volume of sales on the e-auction platform doubled in the first quarter of this fiscal, the average realisation declined by two per cent at ₹1569 a tonne during the quarter under review, as compared to ₹1598 a tonne in the same period last year.

It will take some time for the country’s largest coal miner to get the benefit of higher prices as a sudden spike in e-auction prices might hurt the volume growth in sales, which seems to be the primary aim of the company given its current level of inventory.

“They are not aggressively increasing e-auction prices (at present) but you will definitely see a 10-15 per cent premium (in prices over the last year) in the next six months. E-auction margins are better than FSA (fuel supply agreement) prices so it will help the company earn better margins,” he Sankhe said.

Depending on the demand situation, CIL injects a reserve price, which is the floor price, over and above the notified price, at which the auctions begin. This is done based on the kind of response received at e-auctions and the amount of premium garnered.

“Premiums over notified value are improving with a revival in coal sales. Enhanced volume sales coupled with add-ons would lead to a positive impact on the company’s bottom line,” it said.

Published on August 13, 2021

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