The price of 4500 GCV ROM coal in Wani, Maharastra has increased to INR 13,900/t, up by INR 400/t w-o-w on 26 August, thereby extending its stay on the higher side. Notably, the price has surged INR 2,400/t m-o-m.
The price rise was supported by supply shortage created primarily due to heavy rains.
Western Coalfields Ltd (WCL), the coal supplier to these markets, has attained 51% of its production and 72% offtake goals during 1-25 August, 2022. The situation has slightly improved from July when WCL had met production and dispatch target by 35% and 65% respectively.
Nonetheless, this has impacted dispatches to the power plants, due to which the company is regulating supply for the non-power segment.
To make things worse, dispatches against coal booking against the auction held in June, 2022 were delayed. Plus, there was no auction held in July.
In addition, there were concerns regarding lower quality of coal being dispatched as mines were flooded due to which buyers are showing renewed interest in reseller market.
Improvement in demand
The uptick in price was also supported by the improved demand post-monsoon.
Firstly, need for coal from the agro industries will start to rise as they start to receive raw materials from kharif crops.
Secondly, because of seasonal phenomena industrial activity will pick up with the retrieval of monsoon.
Outsourcing of coal
Amid surge in coal prices, buyers have started exploring alternative markets.
It is important to note that outsourcing of coal is not new for local traders in Wani and Nagpur as prices in these markets are comparatively high compared to adjacent states, but now that prices have gone up significantly, they are looking for options beyond WCL.
A trader from Wani informed Coalmint, “We are looking for coal supply from Chhattisgarh, Madhya Pradesh (SECL) and Odisha(MCL).”
Nevertheless, there were different opinions on this matter.
Another trader contradicted saying, “Outsourcing coal from other states have limited applicability, as it is difficult to find exact grades of coal which industries are used to. This option is better for smaller industries where coal requirement is not specific to a grade or GCV.”
Fresh auction receives higher bids
The prevailing supply tightness pushed bid prices higher at WCL’s recent auction for sale of 177,500 t of coal on 17 August. The entire quantity was booked at a price realisation of INR 8464/t, fetching bid premium of 241% over the notified price. The premium in the June auction was at 185%.
What’s next?
Price hike in Wani is an anomaly compared to other coal resellers’ markets mainly because of the monsoon season.
WCL’s production and offtake have shown improvement, yet prices are expected to remain elevated supported by low coal stock position at power plants based out of Maharashtra. The government will likely prioritise coal supplies to these plants.
However, in the long term, prices would eventually come down boosted by higher infusion of supply once the weather disruption is over. Plus, subsequent cooler temperatures would also aid in improving the coal supply.
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