Rise in domestic supply, coupled with weak demand and bearish global outlook, is hampering CIL’s coal auction.
The largest producer of coal in India, CIL, is facing a dramatic situation as its coal e-auction has not been fetching favorable response by the consumers and it is becoming difficult for CIL to sell the quantities put on auctions.
Earlier, the ministry had increased its auction quantity to 10% in current fiscal, which was restricted to 7% in previous year, but increased production and weak demand has constrained consumers from participation.
In July’15, only 68% of the coal offered in e-auction found takers. In July 2014, that ratio was at around 90%.
In Aug’15, SECL, one of the largest subsidiaries of CIL, put around 2.2 MnT coal in open auction. Out of which, only 55% quantity i.e. about 1.2 MnT was sold.
Prices have been reduced at an average INR 200-300/MT every month in auction since Jun’15 due to persistent poor response from buyers.
Although there is rise in Coal India’s supply, prices falling in global market are the dynamics which are driving buyers away from domestic auction.
Cement manufacturer’s poor response in e-auction
Domestic coal auction have witnessed a weak response from cement industry as they are using imported pet coke as an alternative.
India’s Pet coke imports increased to 1 MnT in Aug’15, highest since Aug’13 which was at 0.3 MnT (SteelMint data).
The country has increased its Pet coke import in FY16 (Apr’15-July’15) by about 61% as compared to same period of FY15 on the grounds of increased supply and persistent fall in prices globally.
The country’s Pet coke import reached 5.8 MnT in FY15, which was about 2.7 MnT in FY14. Country’s imports are expected to increase further.
Sponge Manufacturers’ Participation
The demand from the sponge iron industry has also fallen due to unfavorable product prices. Currently, the industry is relying on imported South African grade as it is more viable for production.
India’s coal import for South African grade (Non-coking) has risen by around 50% in FY15 to 26.6 MnT, which was about 17.5 MnT in FY14
In the current fiscal (Apr’15-Aug’15) India has imported about 14.5 MnT of Non- coking coal from South Africa.
The thermal power producers in the country, the major users of coal, are also suffering due to poor demand. The coal inventory position at thermal power plants, on an average, is significantly better than a year ago.
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