India: Bid premium falls in MCL’s spot coal auction in Nov’22

Coal India Limited’s (CIL’s) largest producing subsidiary, Mahanadi Coalfields (MCL), concluded a spot auction for the sale of non-coking coal on 7 November 2022 in which the entire quantity of 2.03 million tonnes (mnt) was booked. The offering constitutes mainly of lower grades (G12, G13 and G14).

The entire material was booked at a total value of INR 823.80 crore (excluding taxes), fetching an average price realisation of INR 4,058/t. The bid premium was 300% over the notified price in November. However, in September, the notified price was 339%. Notably, no auction was held by MCL in October.

The decline in the bid premium is attributed to a slowdown in industrial activity, which has resulted in low demand for coal. Furthermore, the panic caused by the coal shortage during summer has subsided amid optimism over increased production of the fuel in the coming months.

Grade-wise comparison

• In case of lower grades, the price of G13 fell by over 19% compared to the September auctions. However, bids for G14 rose 4% but for G12, remained unchanged.
• Meanwhile, for high-CV G8 grade, the average price realisation was INR 5,194/t, up by 9% against the previous auction. This rise could be attributed to the limited quantity offered by the miner.

Mine-wise comparison

• Only two mines, Lajkura and Hingula OC, have seen a surge in bid prices by 25% and 8% respectively as compared to the September auction.
• The highest drop of 29% was in the Hirakund Bhubdia UG mine.
• All the mines offering G13 have seen a drop.

Outlook

In the near term, it is expected that coal supply will increase in the second half of FY 2022-23. Meanwhile, demand from the power plants has decreased amid the approching winter. However, there is a need for an increase in coal inventory for power plants as a buffer against the high demand for coal during upcoming summer.

For the non-power sector, MCL’s offerings via the spot auction has to be sustained. All in all, the need of the hour is to increase coal production to satisfy the growing demand of the power and non-power sectors.