India Coal Index prices halt decline in Mar'23 as auction volumes drop

*Coal allocations in auctions drop 85% m-o-m

*High-GCV coal prices rise marginally, other grades largely unchanged

*New single window e-auction mode likely to impact prices

CoalMint's India Coal Index (ICI) remained stable m-o-m in March 2023 after witnessing a steady decline on the back of improvement in domestic coal supplies. The recent revival in demand was supported by the drastic curtailment in e-auction allocations which provided a boost to buying activities.

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. Coal sales for these grade baskets are compiled against regular auctions conducted by state-run miner CIL.

Amid bullish sentiments in the industrial sector, end-users procured high CV coal at higher bids as they geared up for the peak production period in the dry season.

The monthly weighted average price for high-grade specification comprising 5,500 GCV coal increased by INR 663/t to INR 6,461/t in March. On the other hand, prices for premium specification 6,000 CV material remained almost unchanged at INR 7,750/t in March as against INR 7,765/t in February.

There was not much of price movement in the lower GCV bands. In particular, 2,600 GCV coal attracted competitive bidding as only a small quantity was put on sale in auctions.

Otherwise, the ICI indices recorded a correction in the range of INR 400-4,700/t from year-ago levels largely due to supply-side improvements.

Auction volumes plummet

Coal volumes offered in the series of auctions held in March plunged 84% m-o-m to 1.9 mnt. In fact, this was only 16% of the total that was offered in February.

The CIL subsidiaries had allocated bulk volumes in February on the back of ample inventory. Nevertheless, in order to augment supplies to the power sector in view of peak summer demand, the miner had to revise its allocation plan by curtailing e-auction volumes.

In fact, the priority accorded to the power sector has resulted in e-auction sales reducing by almost half at 53.4 mnt as against 108 mnt in FY22.

New sales structure

CIL subsidiaries had implemented coal e-auctions under the 'single window mode agnostic' on a full-fledged basis in March. Interestingly, the entire coal was offered under this scheme in March.

Currently, there are two variants of e-auctions: spot and single window mode agnostic covering the entire gamut of customers.

While the spot scheme is a single-stage bidding process in which material allocation and mode of supply are finalised at one go, in the single window mode the bidding follows a two-stage process-first, material allotment based on competitive bidding and second, deciding the mode/source of supply.

Given the complexity involved in the new sales structure, a section of the trader commodity has adopted a cautious approach towards material procurement.

Meanwhile, a large chunk of traders who have already booked positions in previous sales showed minimal interest in auctions. Nevertheless, the underlying development of a new sales structure had a major implication on prices in spite of the sharp curtailment in coal allocations.

Outlook

Owing to favourable weather conditions, coal-based power generation has marginally fallen by 3% y-o-y to 3,401 million units (MU) during 1-12 April.

With better inventory position along with measures already taken for domestic as well as imported coal sourcing, the power plants are in a better position this year to tackle any unprecedented surge in demand.

In such a situation, allocations via the e-auction route may increase in the near-term.

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.

2nd Asia Coal Outlook and Trade Summit

India's coal production touched a historic high of nearly 900 mnt in FY23. Domestic coal production is proposed to increase to over 1 bnt in 2023-24. About 20-25% of demand in the country is met through imports. Will import demand gradually reduce with higher levels of domestic production? Follow the discussion at CoalMint's 2nd Asia Coal Outlook & Trade Summit at Grand Hyatt Erawan in Bangkok, Thailand on 24-25 April, 2023.