‘No coal notice’ to hit metals and cement producers, affect recovery

Suresh P Iyengar Mumbai | Updated on October 13, 2021

Coal India Ltd data painted a grim picture with 88 of the total 116 plants running on less than five days of stocks   -  RITU RAJ KONWAR

CIL arm halts supplies to non-power sectors

Even as the supply of coal to power plants is being ramped up, the shortage of the fuel is beginning to impact non-power sectors, including steel, aluminium and cement, that could apply brakes on the nascent revival in the economy.

South Eastern Coalfield, a subsidiary of Coal India, has written to non-power sector companies that as coal production is yet to be normalised, there will be no supplies until further notice.

South Eastern Coalfield had already reduced coal despatch to the non-power sector from 45-50 rakes a day to 25-30. The acute coal crunch has especially affected the power intensive aluminium companies as the fuel accounts for 40 per cent of their production cost. Aluminium smelting requires uninterrupted quality power, which can be met only through in-house captive plants with Fuel Supply Agreement with Coal India and its subsidiaries for assured long term-coal supply.

“The decision to stop secured coal supplies and rakes for non-power sector is detrimental for the aluminium industry and will jeopardise the sustainability as these continuous process-based plants are not designed for ad hoc shut down and restart of operations,” said an aluminium company official.

“Any power outage for more than two hours would result in freezing of molten aluminium in the pots which will lead to the shutting down of the plant for at least six months and require 60 per cent of the plant capex to restart production besides a year to get desired metal purity,” he added.

Buying from grid

Most metal and cement producers had started buying electricity from the grid at four times the captive power cost. Import of coal is also not an option as it takes 45-75 days to get the consignment after placing the order, said a cement company executive.

Imported coal prices have touched $240 a tonne (FOB Australia) against $75 a tonne in October 2020 while shipping charges have also hit an all-time high, he added.

The entire industry has come to a standstill and left with no time to devise any mitigation plan for sustainable operations. The coal inventory at operational plants have depleted to 2-3 days against a high of 15 days in April and plants are forced to reduce generation with huge risk of closure, said RK Sharma, Secretary-General, Federation of Indian Mineral Industries.

“Since September 2018, no exclusive coal linkage auction for CPP has been held while insufficient quantity of coal is being offered through spot e-auction by road mode. Following this, the premium in the recent auction skyrocketed making it unviable for NRS coal consumers,” said Sharma.

Bad timing

The coal crisis comes at a time when the economy is beginning to pick up momentum. Most metals company have been projecting huge growth due to a rising demand. Now, metal prices, especially of aluminium, are at historic highs due to supply demand mismatch.

Coal Minister Pralhad Joshi set off on a two-day tour of Jharkhand and Chhattisgarh where a number of mines are located a day after stressing that dry fuel production will soon be ramped up to two million tonnes from the current overall dispatch of 1.95 million tonnes a day. However, Coal India Ltd (CIL) data painted a grim picture with 88 of the total 116 plants running on less than five days of stocks against the normative requirement of 14 days’ stock.

No shortage, insists FM

Finance Minister Nirmala Sitharaman, too, said dismissed reports of coal shortage as “absolute baseless”. Speaking at Harvard Kennedy School in Boston, Sitharaman said, “There is no shortage of anything. In fact, if I recall the (Power) Minister’s statement, every power producing installation has the next four days’ stock absolutely available within their own premises and the supply chain has not broken at all.”

Rating agency ICRA said it expects the coal availability to power plants to improve gradually “...with expected ramp-up in both coal production and dispatch, also given the seasonality in energy demand moderation expected from November,” Sabyasachi Majumdar, Senior Vice-President & Group Head - Corporate Sector Ratings, ICRA, said.

India Ratings and Research said the current situation could be resolved only when coal production particularly from India and China is ramped up by opening new mines and the seasonal pickup or the power demand slows. “As we approach December, the demand is likely to moderate from industrial side. Hence, the combined impact of both a slight moderation in demand and better coal output could aid in the situation easing by December,” Ind-Ra said.

With inputs from Delhi Bureau

Published on October 13, 2021

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