- Textile processors flag sharp coal price rise within 20 days
- Sponge iron, cement face growing raw material costs
India’s rising power sector demand has tightened its domestic coal supply chain, lifting domestic coal prices and beginning to create cost pressure across India’s industrial economy. Textile processors in Gujarat have become the latest consumers to raise concerns as tighter coal availability, elevated auction prices and logistics disruptions push up replacement costs.
The South Gujarat Textile Processors Association has called industry representatives together after coal prices reportedly surged from around INR 6,000/t to INR 9,500/t within 20 days, while better-quality material reached as high as INR 12,000/t.
Processors are considering increasing processing charges as higher boiler-fuel costs coincide with stronger textile orders ahead of the festive season.
But the pressure is not confined to textiles.
Evidence from the sponge iron and cement industries suggests India’s non-power coal consumers are increasingly confronting higher fuel costs just as the power sector itself requires greater coal supplies.
Sponge iron replacement costs rise
Sponge iron producers are particularly exposed because coal represents a critical raw material and fuel for coal-based direct reduced iron production.
BigMint’s assessment of 5,000 GCV washed coal in Raipur reached INR 7,050/t FOR on 19 August, as monsoon disruption reduced availability of suitable run-of-mine coal.
Slower SECL dispatches and less frequent auctions restricted washery production, while final prices for some grades in recent SECL auctions increased by as much as INR 1,500/t, raising replacement costs.
PDRI sponge iron prices in Raipur simultaneously increased by around INR 1,400/t w-o-w to INR 27,100/t.
The situation follows an earlier increase in domestic coal auction premiums as sponge iron producers shifted towards Indian coal following higher international prices.
Coal India attempted to improve long-term availability by offering a record 35 mnt under the linkage auction route to sponge iron producers in June, specifically targeting a sector that traditionally consumes higher-GCV coal.
The latest price movement suggests that aggregate coal availability alone does not determine industrial costs. Availability of the right grades, from the right mines, with reliable logistics remains equally important.
Cement faces a similar squeeze
Cement producers are also exposed to rising fuel costs, although their procurement options are more diversified between domestic coal, imported thermal coal and petcoke.
Earlier this year, rising domestic auction premiums pushed the delivered cost of some 4,000 NAR coal to around INR 8,000/t, increasing energy costs for cement producers.
The alternative has not necessarily become cheaper.
International coal and petcoke prices have also strengthened, reducing the ability of cement companies to switch fuels simply on price.
ICRA expects operating margins across its sample of cement companies to decline by around 1.5-2.5 percentage points in FY’27, partly because of rising input costs and continued volatility in petcoke and other energy markets.
The difficulty is compounded by weak pricing power. Average domestic cement prices fell around 2% m-o-m to INR 345/bag in July, while attempts to raise prices in some markets during August have struggled to gain traction.
Cement companies therefore face higher fuel costs without necessarily being able to pass them fully to customers.
Smaller consumers could be more vulnerable
The impact could become more pronounced among smaller coal consumers including textile processors, brick kilns, foundries and other industrial units.
Unlike large power utilities and integrated industrial companies, smaller consumers generally have limited inventory capacity, weaker purchasing power and fewer alternative sourcing options.
They are consequently more exposed to changes in spot coal prices, auction premiums and local availability.
The Surat textile industry’s experience may therefore be an early indication of a broader increase in industrial fuel costs rather than an isolated regional issue.
Power sector adds another layer of competition
The development becomes more significant because India’s power-sector coal position has tightened rapidly during August.
As of 25 August, 45 coal-fired power plants were classified as critically stocked, up from 31 at end-July, as strong electricity demand combined with monsoon-related mining and transportation disruptions.
Power-plant coal inventories have fallen by around 19% since end-July.
The immediate challenge is not necessarily that India lacks coal.
Coal India continues to hold substantial production capability and has been increasing availability for non-regulated consumers. CIL’s August offtake was also running above last year’s level.
The emerging constraint is increasingly one of coal quality, location and transportation.
Power utilities need sufficient receipts not only to meet current consumption but eventually to rebuild depleted inventories. If power-sector coal requirements remain elevated, railway capacity and mine dispatch could increasingly be directed towards utilities.
That creates potential competition with industrial consumers for logistics even when sufficient coal exists nationally.
India’s coal problem may be shifting downstream
The emerging transmission mechanism is increasingly visible: Higher power-sector coal burn is strengthening utility coal dispatches, tightening logistics and industrial availability, raising auction and replacement costs, and putting pressure on industrial margins.
The effects will differ between industries.
Sponge iron producers are particularly sensitive to suitable higher-grade domestic coal and washed-coal availability. Cement producers can switch between domestic coal, imported coal and petcoke but remain exposed to all three fuel markets. Textile processors and smaller industries are more vulnerable to local spot-market prices and supply disruptions.
This helps explain how India can simultaneously have ample domestic coal resources and still experience sharply rising industrial coal prices.
The relevant question is no longer simply how much coal India produces.
Increasingly, it is which grade is available, where it is located, who receives priority and what it costs to deliver it to the consumer.
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