Thermal coal prices in the reseller’s market have been weighed down by the impact of seasonal demand slump, government policies, fall in imported coal prices, sluggishness in the steel sector and emergence of alternate fuels.
Prices of 5,000 GCV ROM coal in Chhattisgarh’s Bilaspur were assessed at INR 11,500/t, down INR 2,500/t m-o-m on 24 June 2022.
It is pertinent to note that the coal supply in India is carried out by Coal India Limited (CIL) through its subsidiaries via two modes. The major portion is supplied to the power plants and other large industries through the fuel supply agreements (FSAs).
On the other hand, small-scale industries and traders rely on the e-auctions conducted by CIL from time to time for their needs. Meanwhile, traders sell coal in the open market which is known as the reseller’s market.
Factors pulling down coal prices in resellers market:
Increased selling pressure: Traders are under selling pressure as they are finding it difficult to offload the coal bought at very high bids in the auctions.
Bid prices surged as the CIL subsidiaries had curtailed their offerings in the spot auctions in order to step up coal supplies to the power sector amid soaring demand.
Notably, CIL subsidiary South Eastern Coalfields Ltd (SECL) sold 4 million tonnes (mnt) via e-auction during January-May, 2022 which was down 78% y-o-y.
As a result, the weighted average bid price of G8 (4900-5200 GCV) recorded an exponential growth of 264% y-o-y to INR 9,492/t in January-May 2022.
Quantity in mnt | No auctions were held in the missing months
A coal trader in Wani, Maharashtra told CoalMint: “Prices of 4000 GCV ROM coal is above INR 11,000/t but buyers are finding it unaffordable and asking for INR 1,000/t discount which we cannot afford.”
Impact on traders
- Some traders are selling at lower profit margins.
- Others are cancelling booked orders, ready to lose earnest money of INR 200/t deposited before the auction.
Sluggish steel demand
Another reason for the sharp fall in prices is lower demand resulting from the government’s move to slap an export duty on steel products which has had a negative impact on the steel sector.
Increased use of alternate fuels
Coal traders reduced their offers as they witnessed increased usage of alternate fuels like white coal, husk, and briquette. These are available at half the current prices of coal. Alternate fuels can provide energy up to 4,000 GCV and can be used for blending purposes up to 100% substitution.
Fall in imported coal prices
Global thermal coal prices have fallen in the last one month, thus making these competitive against domestic coal.
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“With the fall in prices of imported coal, we are not receiving bookings for domestic coal from plants located near ports,” a trader in Wani said. “Adding INR 2,500-3,000 transportation costs bring domestic coal at par with imported coal whose quality is better than the domestic material.”
Seasonal slump in demand
The fall in domestic coal prices is also induced by fall in coal demand with the onset of the monsoon. Brick manufacturers halted their operations. Besides, coal requirements from limestone producers, cement, and agro-industries also tend to decrease during the rainy season.
Outlook
In the near term, there may be a slight correction in prices in the reseller’s market as demand for coal is going to remain low.
While uncertainty regarding coal supply from CIL and its subsidiaries prevails, reduced demand in the reseller’s market would push the bidding prices a bit lower in the upcoming auctions.
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