* Rise in coal volumes at CIL auctions plugs supply-demand gap
* Uncertainly looms over power demand in near term
* CoalMint unveils India Coal Index
The monthly weighted price of premium high-grade coal of GCV 6000, was assessed at an 8-month low of INR 10,366/tonne (t) in August, 2022, as it extended the steady decline witnessed since the beginning of this financial year of 2022-23 (FY23), CoalMint’s analysis reveals.
The price index, one of the five indices that comprise CoalMint’s newly-launched India Coal Index (ICI), is set on a gross calorific value (GCV) basis, comprising domestic non-coking coals from G1-G5 grades.
The computation has been made by normalising the Representative Prices for relevant grades and deriving the final index by use of suitable weightages.
Prices for premium high grade are still at an elevated level compared to the year-ago period, but have dropped by INR 3,263/t from the highs of INR 13,268/t recorded in April.
A similar pattern was witnessed in the other price indices as monitored by the ICI. In fact, apart from the modest increase noted for medium grade (GCV 4800) and low grade (GCV 2600) coals, prices of the remaining indices fell on a m-o-m basis in August.
Grade-wise Representative Price for August
Prices in INR/t | Quantity in t
Why are prices falling?
ICI derives coal prices from the auctions conducted by Coal India Ltd (CIL) subsidiaries. A sharp correction in prices was primarily on account of improvement in coal volumes being offered in the auctions.
Notably, CIL had offered a total of 4.58 million tonnes (mnt) of coal in its auctions in August –the highest since March.
It should be noted that CIL accords top priority to the power sector in terms of supplies due to which a lower quantity of material was offered at auctions.
However, lower coal demand from the thermal power plants amid a lower generation schedule encouraged the PSU coal miner to increase offerings at the auctions.
Besides, due to favourable conditions, the power producers remained on the sidelines at auctions which led to mild competition among the remaining buyers, giving them the leeway to lower their bids.
Uncertainty over power demand
Domestic coal supply had failed to keep pace with the unprecedented surge in power demand after the lifting of Covid restrictions. Despite signs of slowing down, demand still lacks a definite direction.
Coal-based power generation fell to a 5-month low of 88.28 billion units (BU) in August, which was a minor decline y-o-y against 89.6 BU in August 2021.
However, reversing the downtrend, thermal power generation gradually improved to 3.01 BU/day during 1-19 September against 2.76 BU/day in the corresponding period of August 2021.
This created fresh concerns for the non-power sector which is awaiting normalcy in coal supplies. In particular, traders have adopted a cautious approach as regards procurement, shying away from buying high-priced coal in the apprehension of prices softening.
Interestingly, coal inventory at power plants has started to dwindle again after registering a steep recovery till August. As on 19 September, the inventory level was down 7% to 26.81 mnt compared to the beginning of the month.
This situation might further worsen the non-power sector’s coal supply and could possibly hamper operations across end-user industries relying on domestic coal in case more of it is diverted to the power plants.
Demand for power generally eases during winter but is likely to remain strong during the upcoming festive season.
On the supply side, some CIL subsidiaries have seen weather disruptions hit production and dispatches.
During 1-19 September, coal supply of 1.62 mnt/day was comparatively higher than the production rate of 1.5 mnt/day. Nevertheless, dispatches are almost unchanged from year-ago levels.
Outlook
Under such circumstances, the possibility of any significant rise in coal offerings at auctions seems unlikely. This would continue to support prices in the near term at a time when global coal prices are still elevated.
India Coal Index
ICI is assessed on a monthly basis, as per the weighted average prices derived from the regular auctions conducted by CIL taking into account the non-coking coal grade specifications.
* The process involves collection of data comprising bid prices and sale volumes across various coal auctions conducted by CIL subsidiaries.
* After data standardization, a Representative Price (RP) is calculated against each grade.
* Finally, these individual grade-wise prices are clubbed into sub-categories, and further normalized to derive the final index for various GCV bands by applying weights.
ICI has been formulated in an attempt to provide a mechanism for monitoring the market conditions and for domestic coal price comparisons. CoalMint proposes to release the ICI for five distinct grades of coal. For details click to view the methodology document.
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