India: CIL coal allocation in auctions up by 31% m-o-m in Aug ’20

Coal India Ltd’s coal sale via auction route has attained a 5-month high total during Aug ’20 wherein special emphasis was given to the non-power sector.

The miner had recorded sale of 9.83 mn t coal in the auctions conducted across its various subsidiaries during Aug ’20, which increased 31% m-o-m from 7.5 mn t in Jul ’20. Besides, allocated volume also noted an exponential growth y-o-y from 2 mn t in Aug ’19.

Coal allocation via auctions during the month was limited to spot and exclusive schemes in order to address the coal demand of non-power sector, while not a single auction was reported under special forward scheme which is earmarked specially for power producers.

Of late, CIL has turned towards power plants to liquidate the excess stock available at its mines by offering highest volume in the special forward auction during the first five months of FY ’21 (Apr-Aug ’20).

However, power producers also sitting with comfortable inventories at their premises; have turned a deaf ear to these auctions, where lesser allocation was seen compared with spot and exclusive auctions.

Auction summary for Apr-Aug ’20 period

Quantity in mn t

Eventually, the decision to shift towards non-power sector delivered immediate response in terms of higher allocation, while it also fetched a better price realization for the booked volume which increased 14% m-o-m to INR 1535.77/t in Aug ’20.

Scheme-wise coal allocation:

Exclusive Auction:

Except NECL, where mining operations are temporarily suspended since Jun ’20, all the coal producing subsidiaries of CIL had offered coal in the exclusive auction scheme. In contrast, only two subsidiaries had carried out the auction in the previous month.

Against the offered quantity of 17.65 mn t, 37% of the material was booked and yielded 18% premium over the notified value.

SECL and MCL witnessed sale of three-forth of the total volume, while tepid response was seen in case of ECL, WCL and BCCL, where the percentage allocation was lesser than 20%.

Spot Auction:

Coal allocation dropped 8% m-o-m to 3.36 mn t in Aug ’20 in line with the reduced coal volume offered under this auction scheme.

But, booking of 47% of the total quantity, which is the highest allocation in terms of percentage since the beginning of FY ’21 reflects gradual revival in domestic coal demand. (Detailed subsidiary-wise results can be seen here).

Challenges ahead:

At the end of Aug ’20, CIL’s coal stock at pit head mines was marked 62.73 mn t, which stood nearly 38 mn t in excess than the levels seen during Aug ’19.

In an oversupplied market, where buyers are currently restraining the additional coal supplies via auction, a tough decision is to be made by CIL whether to keep the reserve price same as that of notified price, a relief measure which was initially planned till Sep ’20.

There is possibility that buyers may turn towards imports when domestic coal loses its cost-competitiveness if the decision is revoked.