Medium-grade coal prices rise on robust power sector demand

*High-grade coal prices drop in Jan'23
*No auctions from MCL and NCL, volumes fall
*Power producers ramp up purchase on strong demand
*Mid-CV coal prices edge up

CoalMint's flagship India Coal Index (ICI) extended its decline in January 2023 owing to overall dull market conditions and prices remained depressed despite the low volumes offered at auctions. However, mid-CV coal prices increased on active power sector demand.

The ICI, set on a gross calorific value (GCV) basis, consists of five distinct indices formed by grouping the domestic non-coking coals from G1-G17 grades. The computation of these indices is made by normalising the bid prices received for relevant grades against regular auctions conducted by Coal India Ltd. (CIL) subsidiaries by use of suitable weightages.

In January the monthly weighted average price of premium and high coal grades dropped by INR 4-7% m-o-m to INR 9,146/t and INR 6,128/t respectively, in a way tracking the overall decline in coal prices in the global market and India's import prices.

Buying sentiment in the domestic market was negatively impacted by prevailing high prices, which are still hovering above year-ago levels.

However, renewed interest for mid-CV coal lifted prices of medium-to-moderate low coal grades by INR 196-834/t, as the power producers explored the e-auction route to accumulate adequate material ahead of the peak summer season.

Inconsistencies in e-auction

On its part, CIL has gradually scaled up production levels in the final quarter of FY23 (January-March), which is the peak mining period.

Notably, the company's production touched 71.9 million tonnes (mnt) in January, rising 11% y-o-y. Also, this was the highest-ever production recorded in January of any fiscal so far.

However, this robust performance did not result in higher coal volumes being offered at e-auctions as the total earmarked quantity for auction sales has been curtailed in view of augmenting supplies to the power sector.

Indicating a partial revival, CIL subsidiaries had offered coal in excess of 5 mnt during November-December for auctions in tandem with improvement in production levels post monsoon.

Nevertheless, volumes dropped to 3.2 mnt in January, with major coal producing subsidiaries, Northern Coalfields Ltd. (NCL) and Mahanadi Coalfields Ltd. (MCL), not conducting auctions.

Overall, sales via the e-auction route plunged nearly 60% y-o-y to 39.41 mnt during April 2022-January 2023. And this has throughout kept prices supported.

Power demand soars

India's coal-based power generation increased 12% y-o-y to an 8-month high of 101.56 billion units (BU) in January as against 90.77 BU in January 2022. The 100 BU-generation mark in a month was attained by the coal utilities early this fiscal (in January) compared to March last fiscal.

This came after peak power demand touched 211 gigawatts (GW) in January recovering from the lows of 187 GW during October-November.

This abrupt rise compelled power producers to secure additional supplies via e-auctions, particularly of mid-CV specification, which is mostly preferred for power generation.

The renewed interest was also incited by the government's mandate for the utilities to import 6% (by weight) of their requirement for blending purpose, failing which a curtailment in domestic supplies has been proposed.

Subsequently, power producers were actively procuring material by placing higher bid prices in auctions, as domestic coal is comparatively cheaper than imported material.

Outlook

Record power generation has slowed down the inventory build-up at power stations as the utilities struggle to accumulate enough coal. At the end of January, coal inventories have gradually improved to 33.13 mnt as against the lows of 26.11 mnt, but are still lower than levels seen previously.

Now, as the government seeks to ensure adequate inventory ahead of the summer season, it is expected that more of domestic supplies would be diverted to the power sector. This situation can trigger a fresh round of coal shortage for the different domestic coal-consuming sectors and drive up prices.

India Coal Index Methodology

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.