After being hit by many negatives in
the last few years, there seem to be emerging some positives for the power
sector. Recently a hike in tariff was
implemented in states like West Bengal, Tamil Nadu, Delhi, etc and it is
believed that a few other states will also follow suit. The PMO's office, coal
ministry and the power ministry also seem to be conscious about resolving the
power crisis situation in the country.
Although coal production has not
shown any overnight increase, the government has asked the coal ministry to
de-allocate the private sector coal blocks and give them to Coal India.
Besides, it has asked Coal India to appoint mine developers and operators (MDO's) in order to expedite coal production from these mines.
However, on the international front the
coal prices have cooled off. The demand for coal has declined marginally, as
reflected in the coal prices. The Indonesian coal reference price in the last
one year has came down by 14% and there is mixed opinion about whether the
coal prices will decline further from the current level. The cooling of the
international coal prices looks beneficial for the Indian power sector which
has some of the companies importing coal from Indonesia.
Also, the coal prices in other
countries such as Australia, South Africa, etc have also shown a significant
decline. The Newcastle Index (Australian coal price index) is down by 18% while the Richard Bay Index (South Africa) is also down by 19%. The higher
drop in the coal prices is seen in the Delivered Ex-Ship (DES) Antwerp/Rotterdam/Amsterdam (ARA) Index which is down by nearly 30%.
The fall in the coal prices can be attributed to the over-supply situation
created due to the availability of cheap natural gas. The U.S. has been
replacing coal with cheap natural gas. Besides, the fall in industrial activity
in many countries which has also helped the coal prices to correct in the range
of 20-30 % in the year's time. The slowdown in the Chinese economy has resulted
in lower coal consumption and thus affecting the Indonesian coal prices which
have decline.
The situation may look good for
sectors dependent on coal such as power, steel and cement but one need's to
consider the national currency which has hugely depreciated by 27% during this
time. Therefore, the net impact will not be on the profits of the companies.
Moreover, from here on the coal production is likely to be cut and this will
increase the coal prices. Coal prices from here on will have a limited downside
and hence the fall in coal prices would not benefit companies engaged in the
Indian power sector.
Sourced
Leave a Reply