Small coal users paying double of regulated price as power plants go short on stocks; analysts expect a sharper uptick in the second half
It is a good time for mining giant Coal India Ltd as spot prices of coal sold through e-auction have become almost double the regulated price at which the fossil fuel is sold to power plants.
The price premium over regulated price has touched a high 95% for the month of October, from just 32% in June. Prices for November, which are yet to be disclosed, are likely to be around the same level, market experts said.
The reason for the steep upward move in spot prices is a significant jump in the demand for coal mainly due to rise in demand for thermal power and drop in availability of energy from non-conventional sources.
The sharp rise in the price premium has been consistent, from 32% in June to 47% in July, 67% in September and 95% in October.
"The jump in prices took place because of reduced offering of Coal India for auctions because of higher demand from power plants. Power plants were preferred over non-power sector. So, for the consumers of coal other than power plants, there were two options: either go for auction or import coal. With a large number of consumers chasing a reduced supply, prices jumped," said Rakesh Dubey, Indian market editor of McCloskey Coal Report.
While Coal India supplies most of the requirement of power sector at regulated or notified prices, some coal to meet the requirement of non-power sectors like steel, cement and other coal-based plants is sold through e-auction.
Analysts had been expecting this rise in spot prices and they believe the trend will continue. "E-auction realisation was lower in the first half due to scheduling of deliveries. We expect a sharper uptick in the second half," said a research report of Motilal Oswal.
Coal India has so far been restricting its supplies to e-auction due to higher demand from the power sector, said Dubey.
Allocation to spot auction was hovering around 3.5 million tonne from June to August, but rose sharply to 30.5 million tonne in September and then to 43.4 million tonne in October.
Even while the demand for power has been rising, domestic power producers including NTPC went for more of Indian coal rather than imports following a government policy further pushing up coal demand.
"There was less demand for thermal coal imports, which, since January till October, were 118 million tonne. Taking provisional import figures of November, it would be about 130 million tonne. This is against 146.71 million tonne clocked in the corresponding period of calendar 2016," Dubey said.
E-AUCTIONS SOAR
- The rise in the price premium has been consistent, from 32% in June to 47% in July, 67% in September and 95% in October
- Allocation to spot auction, which was hovering around 3.5 million tonne from June to August, rose to 43.4 million tonne in October
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The sharp rise in the price premium has been consistent, from 32% in June to 47% in July, 67% in September and 95% in October.
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