India: Bid premium continues to fall in MCL’s spot coal auction

CIL’s largest coal-producing subsidiary, Mahanadi Coalfields Ltd. (MCL), concluded a spot auction for sale of non-coking coal on 16 August, 2022 in which the entire quantity was booked.

The company had offered 2.31 million tonnes (mnt) of coal comprising of grades G8, G12,G13 and G14, of which G12 and G13 grades alone constituted 76% of the total quantity offered.

Indicating robust demand, the entire material was booked at a total value of INR 1,174.80 crore (excluding taxes) fetching an average price realisation of INR 5,069/t. The bid premium was 331% over the notified price.

CIL subsidiaries are offering lower volumes of coal in spot auctions in order to augment coal supplies to the power plants. Notably, no auction was held by MCL in July.

However, despite the lower volumes offered, buyers didn’t show great urgency in procuring material which resulted in lower bid prices. In June, the average realisation at spot auctions was assessed at INR 5,505/t which was around 450% higher than the notified price.

Why bid prices continue to fall?  

This is the second consecutive correction in auction bid premiums since April when the bid premium rose by 749% over the notified price, leading to a fall in end-user demand.

In addition, prices fell in tandem with demand for coal with the onset of the rainy season as industrial activities slowed down.

• Grades G12, G13 and G14 coal prices fell 7%-12% from the June auction.
• The average prices realisation for the G8 grade was INR 4,756/t. This is higher against the previous auction when coal was sold at a reserve price of INR 2,122/t.
• This rise could be attributed to the limited quantity of high-CV coal as G9 coal was not offered.

Outlook   

In the near term, it is expected that coal supply via spot auction is set to increase as power plants have accumulated sufficient stocks which should ease coal supplies to the non-power sector.

The government’s recent directive to suspend imported coal transport from ports to power plants by railway on a priority basis and the reduction in the blending percentage of imported coal from 10% to 5% for coal-fired power plants are seen as positive indicators.

Increase in supplies would further push prices down. However, heavy rains across mining areas pose a threat to supply as was the case with Western Coalfields limited (WCL).