Will Indian Coal Imports Rise on Inadequate Coal Supply by MCL?

The coal shortage at power plants is haunting the Non-power consumers as well, following MCL’s decision to cut down coal supply to the Non-power sector for the second successive month.

MCL has allocated for its Non-power consumers (lifting coal through FSA and Linkage route) only 80% of the monthly scheduled quantity for Nov’17. Earlier in Oct’17, the company had also requested the same, in order to facilitate coal supply augmentation to power plants.

In the period of limited coal availability when CIL is increasing coal supplies to power plants, Non-power consumers are forced to meet their coal requirements through Spot E-Auctions which are costlier way of sourcing coal in comparison to the normal FSA route, as it involves aggressive bidding to procure from a reduced pool of Coal.

Traditionally, spot coal auction conducted by MCL yields INR 250-300/MT higher than the reserve price of coal. However, during the recent spot auction bid prices were reportedly INR 1070-1850/MT higher than the corresponding reserve price.

Sponge Iron manufacturers are more affected by MCL’s decision, as they are forced to pay higher to meet their coal requirements following the aggressive bidding in the auctions.

MCL Spot Coal Auction Result:

Source: CoalMint Research
Price in INR/MT

A Sponge manufacturer has commented that it is more viable to use South African imported coal rather than the domestic coal. According to him, coal costs INR 10,400/MT for sponge manufacturing while using domestic coal comparable to INR 7500/MT for South African 4800 NAR coal.

1 MT of imported Non-Coking coal is equivalent to 1.3 MT of domestic coal supplied by CIL, because of the high ash content in Indian coal.

CIL’s coal production has increased in the recent months but it will still take a while for coal supplies to get normalized again, and with the sponge iron plants running at high rates across the country, it is highly likely that South African coal import to India will increase further.