India: Coal India empowers subsidiaries to fix reserve prices of e-auctions
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Coal India Limited (CIL), a Maharatna Company, has announced a new directive empowering its subsidiaries as well as North Eastern Coalfields (NEC) to set reserve prices for coal e-auctions. This directive, outlined in letter No. CIL/GM(M&S)/E-Auction/4881, a copy of which is with BigMint, comes in response to fluctuating coal prices and changing supply-demand dynamics both domestically and internationally.
New flexibility in pricing
The subsidiaries of CIL can now fix reserve prices with an add-on over the notified price across various e-auction schemes. This move aims to address the declining trend in international coal prices and the increased supply from CIL, which has led to a saturation of demand in the domestic market. Notably, the current e-auction system has seen only 40% booking of offered coal.
Strategic considerations for pricing
Coal companies are encouraged to reassess and adjust reserve prices considering multiple factors like local demand-supply scenarios, loading modes optimisation and inventory and previous booking levels. Notably, the quantity booked in e-auctions have come down to 3.83 mnt in June 2024 against 11.7 mnt in February 2023. Bid premiums have fallen to 38% in June 2024 versus 183% in February 2023.
The directive also references the outcomes of the Q1 e-auctions, stipulating that coal companies, excluding NCL, may offer up to 40% of their monthly coal production under the Single Window Mode agnostic e-auction scheme. This measure is in line with maintaining a 20% limit of overall production for compliance. The situation will be reviewed in Q4, with necessary adjustments communicated accordingly.
This strategic empowerment to set reserve prices aims to enhance the efficiency of coal distribution, address market saturation, and respond dynamically to global and local market trends. Last week, CIL decided to reduce the Earnest Money Deposit (EMD) for its single window mode agnostic e-auction to encourage broader participation. Historically, the EMD was at INR 200/t and had increased to INR 500/t. After thorough discussions, the CFDs approved reducing the EMD from INR 500/t to INR 150/t.
As the subsidiaries implement these changes, the coal industry is expected to adapt more effectively to the evolving economic landscape and improve participation in upcoming auctions.
