Coal India Ltd is not looking to revise prices of coal as of now despite a widening of the gap between the domestic and international prices of the fuel, an official source told FE. The state-run company’s decision to refrain from seeking higher margins at this juncture augurs well for the power sector and consumers of electricity, and may also tend to have stabilising effect on fuel inflation.
“The revision of prices is not on the card as of now. Everything has to be taken into consideration like electricity prices and the economy before we consider revising prices,” the source said.
Analysts, however, see firm international prices of coal to have a trickle-down effect on e-auction prices. Domestic prices, however, are currently at a discount of 40-50% to international markets, experts say.
“The prices were revised four years ago and last year we had revised rates for a few grades,” the source said.
The revision of coal prices by Coal India is majorly determined by wages of the workers in the company which is revised once in every five years. “The normal increase in wages due to dearness allowance etc, is usually absorbed by the company due to improvement in productivity,” Partha S. Bhattacharya, former Chairman and Managing Director of Coal India Ltd had said. “If the company is growing how it is projected to grow, I don’t think it requires a price revision to handle the impact of rise in wages due to inflation. It should be able to absorb the prices.”
Moreover, e-auction prices have started to increase due to an uptick in the Indonesian coal price. Analysts believe that a rise in international prices will further aid in the increase of domestic e-auction coal prices.
The price of Indonesian coal (4200 kcal) has gone up 17% since August, to $58.94 per tonne, according to ICICI Securities. “The rising costs for Indonesian players may provide support to prices,” the firm said in its recent report.
“In its recent result, the largest coal miner in Indonesia, Bumi Resources guided for a cash cost of production at $ 55-60 per tonne in calendar year 2023 against FOB (Free on Board) realisation of $ 71 per tonne in the third quarter of CY23,” the report said. “In our view, the higher price of Indonesian coal may aid CIL’s e-auction price.”
Even as the country registered an increase in its coal production so far, imports from China are expected to stay elevated in the near term owing to domestic production being impacted as a result of mine closures pursuant to safety audits and lower hydro-power generation, analysts say.
India meets over a fifth of its coal consumption via imports, and the import bill stood at close to Rs 3.9 trillion last year. Sales via e-auction is roughly 15% of the domestic coal market.
Coal India produced 460 million tonne of coal till November in FY24, up 11.5% from the corresponding period last year, as per the latest data by the company. During November alone, the company registered a growth of 8.8% in its production at 66 million tonne.
The company’s pithead inventory had supplies of 45 million tonne of coal in November implying that it can meet additional demand for coal, analysts said.
ICICI Securities estimates CIL’s volume growth at 751 million tonne for the current financial year. “We believe there is headroom of at least 20% upward revision in consensus estimates,” it said.