With the global demand for coal surging over the past few days, state-run Coal India (CIL) is relying on the newly-instituted single window for e-auction to fetch higher premiums. The new facility has come in handy for the coal miner, as domestic and international coal markets are increasingly moving towards price parity.
Average global coal prices across grades for the past week were around $ 437 per tonne (free on board), up more than 150% from a month ago, Market Insider, a minerals market tracker, said. New Castle futures recorded a price of $430/tonne, up around 145% from the level prevailing before the Ukraine-Russia conflict. The government has long been trying to work out import parity prices for non-linked supplies, even as ‘linked-coal’ consumers (under long-term fuel supply agreements) get the fuel coal at deep discounts.
CIL has been pushing 20% of production to the various auction platforms to get premiums over the notified prices. “There is nothing wrong in pushing more coal to auction platforms to command a premium after regulatory obligations are met,” a CIL official told FE. In a move aimed at giving an impetus to the fledgling open market for coal, the Cabinet Committee on Economic Affairs (CCEA) recently said all producers, including state-owned Coal India, would now sell the dry fuel through a common e-auction window, rather than via sector-specific auctions. While existing coal linkages won’t be disturbed, the CCEA decision would help correct market distortions as all users, including thermal power producers, steel and cement companies, will be treated at par under the e-auction window, and offered coal at the same rate.
The common e-auction window could also increase operational efficiencies and lead to an increase in domestic coal demand. Also, coal producers will no longer have the discretion to allocate coal to different end-use sectors and be encouraged to set up coal gasification plants. There is also a trend of more players entering commercial coal production after the government, in October last year, allowed captive coal producers to sell up to 50% coal produced from captive mines in the open market, after meeting the requirement of end-use plant linked with the respective mines. Importing thermal coal has not been easy despite the mandate given to state-run users NTPC and DVC for imports. Earlier, a special spot e-auction, exclusively meant for exporters, existed where the sellers commanded premiums with near import-parity pricing.
CIL’s first round of auctions for exporters fetched a hefty 52% premium over the notified price, when international prices were an average $146 per tonne across categories. With current average prices across categories hovering at above $ 400 per tonne, premiums at present might easily exceed 100%.
“This, to some extent, can offset the low revenue realisations from linked consumers, making delayed payments to the mining PSU. The PSU miner suffered low realisations from e-auction sales last fiscal owing to the pandemic. But the special spot e-auction for importers during April-June period this fiscal fetched CIL `47,000 crore, a new high from auction sales, with almost the entire 1.6 mt offered to coal importers getting booked. The auction for non power consumers offered an increased volume of 11.8 mt in the first four months of the fiscal, clocking 69% year -on-year growth. Growth in auction booking continued mostly from the non power and trading segment consumers, as they could increase their blending percentage for the cap they could put on the cost of production.
Given CIL’s current offtake, averaging a little over 2 mt a day, it is expected that despatches would reach 670 mt by the fiscal-end with demands showing holding signs.
This opportunity makes sense for CIL to push more coal to the e auction platform with the single window removing consumers’ segregation, enhancing competition and most importantly removing cartelisation, an impediment to real price discovery, a senior company executive said.
CIL, up to March 4 this fiscal, despatched 604.14 mt of coal. The subsidiaries’ sustained efforts and inspired performances “would enable them to end FY22 on a sound note,” CIL chairman & MD Pramod Agrawal said.