*GCV 5500’s monthly weighted price dropped by INR 1,060/t m-o-m
*Despite drop, prices still on higher side
*Restocking by brick, cement sectors may limit steep corrections
Morning Brief: CoalMint’s India Coal Index (ICI) recorded a decline in October 2022 on the back of gradual improvement in supply conditions which encouraged buyers to lower their bids in the auctions. Barring the premium grade specification, the remaining indices registered a hefty fall m-o-m in the previous month.
The price index, comprising of five distinct specifications, is formulated by integrating various non-coking coal grades floated in the regular auctions conducted by Coal India Ltd (CIL) subsidiaries. The index follows the movement of bid prices received against the relevant grade baskets.
The monthly weighted price of high-grade coal of GCV 5500 decreased by INR 1,060/tonne (t) m-o-m to INR 7,897/t in October, while the lower specifications hit the lowest mark since March, 2022.
Reasons for rise in supplies
Lower coal allocations in auctions have been a driving factor behind the rising prices this year at a time demand for power was soaring.
However, even the case of limited offering failed to lift coal prices in October when the volume put on auction was reduced to 3.15 mnt against the quantity offered in excess of 4 mnt in the past two months.
This came after CIL had reported a strong recovery, post-the monsoon hiatus, by ramping-up the production rate to 1.71 mnt/day in October, 2022 as against 1.52 mnt/day in September, 2022. This was also markedly 6% higher on a y-o-y basis.
In addition, demand cool-off from the power sector with the onset of winter has eased the burden on the part of the miner.
In the wake of a lower generation schedule, the power plants have accumulated 26.11 mnt of coal inventory at the end of October, 2022 as against 14.02 mnt in the year-ago period. This further dissipated the brief spell of panic induced in September, when the inventory had dropped to 26.11 mnt from the levels of 29 mnt recorded in July-August.
Factors that pulled down Oct prices
Prices still high: However, even though prices across high-to-low CV specifications have dropped by INR 980-2000/t on a m-o-m basis, these have increased nearly three-fold compared to the levels seen at the beginning of FY2021-22 and are thus still on the higher side. Coal sales via auctions involve huge involvement of traders who procure material to resell at a premium in the open market. However, the elevated prices have sent shockwaves across end-users who are not showing interest in lifting the material.
Dull market scenario: Besides, dull market conditions have also impacted buying sentiments. Notably, various industries have curtailed coal procurement in the anticipation of further price correction as the current levels are not within their operating margins.
Expected rise in dispatches: At the same time, buyers anticipated improvement in coal dispatches that would further ease the supply crunch especially when the power plants are in a much better position in terms of inventories. They thus adopted a cautious approach towards coal procurement by not bidding at high prices.
Outlook
In the short term, prices are expected to continue their downtrend. However, the possibility of steep corrections would be dampened by restocking activity particularly from the brick and cement sectors.
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