MCL Coal Auction Prices Fall on Increased Offer Quantity

Mahanadi Coalfields Ltd (MCL) is the second-largest coal producing subsidiary of CIL. The recent round of coal e-auction conducted by the company has witnessed coal prices falling on account of increased quantity offered for sale.

Bid prices in MCL’s auction which traditionally yields INR 250-300/MT higher than the reserve price, were reportedly INR 1070-1850/MT higher than the corresponding reserve price in Oct’17 auctions.

However, on account of increase in coal quantity offered for sale, Bid prices had fallen in the Nov’17 spot auctions. Only Bid offer for coal offered from Hingula colliery has increased by INR 70/MT than the previous month’s price, while bid offers from the other major collieries has fallen in the range of INR 260-330/MT in Nov’17 auction.

Source: CoalMint Reseach
Grade in kCal/kg
Prices in INR/MT

Scarcity of coal in domestic market has been the reason behind the aggressive buying in MCL’s coal e-auction, as buyers had turned towards coal auctions to meet their demand.

It all started when, CIL had cut down coal production during the beginning of current fiscal FY18 to clear the excess coal stock. When power demand increased in Aug’17, thermal power generation went up substantially, necessitating higher coal. Eventually CIL inability to cater the raised coal demand had led to coal shortage situation across the country.

MCL too was facing production shortfall during Apr’17-Jul’17, as the total production during the period was 42.09 MnT, down 5% Y-o-Y compared with 44.46 MnT during Apr’16-Jul’16.

In order to cater the growing demand of coal to power sector, MCL had asked Non-power sector to lift 80% of the monthly scheduled quantity for the successive months of Oct’17 and Nov’17.

After government’s interference, MCL is now progressively increasing monthly production which has achieved highest total of 11.6 MnT in Oct’17, up 19% M-o-M from 9.74 MnT in Sep’17. The increase in production tempted MCL to increase the offered coal quantity for Nov’17 spot coal auction.

The total coal quantity for sales was 12.9 Lakh Tonne(LT) for the auction held on 21 Nov’17, while a total amount of 11.03 LT was offered for Oct’17 auctions.

Market participants in Odisha region have informed that they are currently procuring RB3 coal (South African 4800 NAR coal) along with domestic coal to meet their coal needs, as RB2 coal because of high price was not viable at the time being. Rb3 coal price was quoted INR 5950/MT at Indian port.

Despite the growth in coal production and rake movements, the normative coal stock still remains around 9 MnT at Indian power plants, sufficient for 6 days of power generation. To meet the CEA norms of maintaining 15-20 days stock at power station, power producers will look to restock coal.

Moreover, the low Hydro power output after monsoon will demand higher thermal power generation, due to which Market participants are anticipating coal shortage for Non-power sector to remain firm till Mar’18.