Development of National Coal Index (NCI) carried out to evaluate revenue share for coal blocks underlined that the representative prices derived from it were significantly higher than the CIL notified prices.
However, sluggish demand in the market has effectively bought down the index as indicated in the latest notification issued by Coal ministry.
Indices for various sub-sectors have decreased from the levels seen in Mar ’20, determined on the basis of the price channels viz. notified price, auction price and imported price, with each playing a key role in the mechanism.
Key findings:
(a) It is pertinent to note that NCI is weighted average of coal price based on the price level of base period (FY ’18).
(b) Index for bottom grade of coking coal having greater weightage for notified price and involving no import component, has emerged superior among the other sub-sectors.
On the other hand, index for top grade of coking coal providing greater weightage to import prices, has dropped significantly in line with the decline in international coal prices.
(c) Relatively better price strength for bottom grade providing nearly equal weightage to notified and auction prices was also noticed in case of non-coking coal, as it depicted linear movement than the top and middle grade baskets.
Representative price edging closer to CIL notified price
Basic difference involving calculation of NCI and representative prices (RP) for various grades is that the former accounts coal value while the latter only accounts the coal volume involved in the assessment.
Latest RP for the month of Aug ’20 indicates that prices have significantly fallen from Mar ’20, but despite the slight m-o-m rise from Jul ’20 particularly for top grade of non-coking coal and almost entire range of coking coal grades, these were still assessed higher than the CIL notified prices. (Grade-wise NCI prices for Mar-Aug ’20 period can be seen here).
Being a market driven index, NCI prices can vary as seen in the recent months, yet the participants would be expecting that it should remain closer to the CIL price, in order to remain competitive in the market.
After a temporary halt due to the request made by nominated authority regarding additional information from bidders, the auction process is likely to resume with the announcement of revised schedule.
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