CoalMint's India Coal Index continues to fall in Nov'22 on improved supply

*Volumes offered at CIL e-auctions rise to 8-month high
*CIL coal production in Nov rises nearly 15% m-o-m
*Demand from across sectors remains tepid despite price drop

CoalMint's India Coal Index (ICI) inched down further in November 2022 from the peaks seen in the beginning of this year, driven majorly by the overall improvement in domestic supply conditions.

The ICI is set on a gross calorific value (GCV) basis, comprising domestic non-coking coals from G1-G17 grades. The computation is made by normalising the representative prices for the relevant grades and deriving the final index by use of suitable weightages.

The index, comprising five different indices, is formulated by integrating various non-coking coal grades that are put under the hammer in regular auctions conducted by Coal India Ltd. (CIL) subsidiaries. The ICI follows the movement of bid prices received against the relevant grade baskets.

The monthly weighted price of premium grade representing GCV 6000 specification decreased by INR 311/tonne (t) m-o-m to INR 10,323/t in November. At the same time, a marginal drop of INR 131/t m-o-m was recorded for the medium grades of coal.

On the other hand, the decline in prices of the high and low grades was rather steep in the range of INR 756-906/t.

However, prices of moderate low-grade (3500 GCV) saw an uptick of INR 575/t to INR 3,948/t supported by restocking demand from brick manufacturers. This particular specification attracted bidder's attention after considerable volumes falling under the grade basket was put on sale, while only a nominal volume was offered in the previous month.

The grades falling in this specification comprise G12-G14 material. In November, the allocated quantity was 2.07 mnt as against 0.2 mnt in October.

CIL's upbeat performance

Coal offered for e-auction by various CIL subsidiaries rose to an 8-month high of 5.89 mnt in November. Except Central Coalfields Limited (CCL), all the remaining CIL subsidiaries conducted auctions during the month.

CIL had drastically reduced offerings in order to augment supplies for the power sector amid elevated demand. However, the continual uptick in production post monsoon has gradually eased the supply pressure in terms of coal allocation via auctions.

In November, CIL registered a y-o-y growth of 13% in coal production to 60.7 mnt, which was 15% higher m-o-m from 52.94 mnt in October.

Notably, the monthly production mark of 60 mnt was attained for the first time in November in the ongoing fiscal. This milestone was first recorded in December of last fiscal.

In a significant development, CIL has breached the 400-mnt production mark in the shortest possible time this fiscal ever since its inception. The milestone was attained on 24 November of the ongoing fiscal, 31 days ahead of 25 December last fiscal when the miner recorded coal production crossing the 400-mnt mark.

Demand fails to pick up

Apart from higher supplies, there was no encouragement for buyers to raise their bids in a dull market. Especially, restocking demand from brick and cement manufacturers remained slow.

Some end-user industries have even curtailed their purchases as the current price levels are not within their operating margins. At the same time, the steady drop in prices is not offering any support to buying sentiments.

Moreover, there was limited buying seen from traders who adopted a watchful approach as regards coal procurement. Traders are currently lifting material in proportion to the demand coming from their buyer segments, after their businesses were impacted by price volatility.

Outlook

Demand from the power sector has gradually slowed down, especially with winter approaching in most parts of the country.

Nevertheless, the government has set its sights on attaining 45 mnt coal inventory by March next year from the current level of 30 mnt as a sign of preparedness for the peak summer season.

This indicates that chances of any remarkable surge in offerings at auctions remain limited, as the miner would continue to prioritise supplies to the power sector. In such a scenario, any steep decline in prices is not expected, whilst the price movement is likely to depend on the performance of the end-user industries in the coming months.

India Coal Index

The ICI is assessed on a monthly basis, as per the weighted average prices derived from the regular auctions conducted by CIL taking into account the non-coking coal grade specifications.

* The process involves collection of data comprising bid prices and sale volumes at various auctions conducted by CIL subsidiaries.

* After data standardisation, a Representative Price (RP) is calculated against each grade.

* Finally, these individual grade-wise prices are clubbed into sub-categories, and further normalised to derive the final index for various GCV bands by applying weights.

The index has been formulated in an attempt to provide a mechanism for monitoring the market and for domestic coal price comparison. CoalMint proposes to release the ICI for five distinct grades of coal. For details, click here to view the methodology document.