Domestic coal prices in Wani, Maharashtra and Bilaspur, Chhattisgarh have dropped by INR 1,500/t in a month due to low demand and increased supply. As per CoalMint data, prices of 4,500 GCV coal in Wani dropped by 13% m-o-m to INR 10,000/tonne (t) exw on 25 November 2022 while prices of 5,000 GCV coal in Bilaspur have dropped by 12.5% m-o-m to INR 10,500/t exw.
Factors keeping coal prices under pressure –
- Improved supplies: Coal production and dispatches have improved after the monsoons. SECL’s offering reached 3.33 mnt in October-November 2022 as against 3.5 mnt offered in April- September 2022. Meanwhile, WCL’s coal dispatches improved after getting affected by heavy rains during the monsoon season.
This has fuelled expectations of a fall in prices in the future, limiting procurement volumes by end users and traders.
- Drop in commodity prices: The fall in commodity prices in the iron and steel sector is putting pressure on coal traders to reduce their offers. Buyers are complaining that the drop in coal prices is marginal as compared to the fall in commodity prices.
Meanwhile, some manufacturers are reluctant to procure coal because they have higher inventories of their finished products.
- Limited revival of demand: Some commodities in the agro-industrial sector, such as soyabean, have seen price drops, causing production cuts. This has dampened the hope of coal demand revival from this sector.
Meanwhile, demand from brick manufacturers has not yet picked up as they have old stocks that have not been sold. Higher coal prices in the past have pushed brick manufacturing costs up, resulting in a fall in brick demand.
- Fall in liquidity: Liquidity has decreased as payments by market players are increasingly getting trapped or delayed due to higher inventory and low demand.
Outlook
In the near term, prices are anticipated to decline but the correction will be minor. Supplies are likely to improve but there is little expectation of a major rise in coal demand.
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