Prices of coal in the domestic market are unlikely to see any correction in the near term as the forecast for international thermal coal prices remains subdued.
Coal India Ltd (CIL), the largest producer feels an uptick in power demand would boost offtake and strengthen prices. The coal behemoth expects its e-auction prices to go up for both regulated and non-regulated sectors.
In the April-June quarter, CIL's e-auction prices fell 10 per cent compared to the previous quarter, impacting its bottom-line. The realisation was low primarily because of muted demand and lower global coal prices. However, things would not be stressed in the coming days, said a senior CIL official.
"The off-take situation is improving and the average coal realisation is expected to go up. As the demand for power is expected to rise, power producers would be in need of higher coal volumes and e-auction prices would firm up", he said.
E-auction of coal accounts for 15-20 per cent of CIL's volumes but contributes 60-70 per cent to the net profit.
Coal-based thermal power generation in the country came up 17 per cent in August (compared to August 2016) as hydro power output fell 12 per cent and nuclear power tanked by 36 per cent. Power generated from other sources also declined seven per cent in the month. Coal offtake grew 17.8 per cent in August.
Global seaborne thermal coal prices after easing have continued their recovery over the previous month on the back of developments in China, says a report by FocusEconomics. "News of potential strikes in Chinese coal mines and a Chinese government crackdown on illegal mining activity have put pressure on supply", the report said.
While Chinese demand would drive prices, the report predicts a subdued outlook for thermal coal prices with the global shift to natural gas fired power plants and an expected oversupply this year.
According to a recent report by Icra, international thermal coal prices are poised to remain under pressure in the rest of this year and soften as key importers like India, China and South Korea are expected to cut imports. Till August end, spot thermal coal prices were at $102 per tonne. While for the rest of 2017 the spot thermal coal prices are projected at $75-80 and fall further to $60-65 per tonne in 2018 and 2019. China has imposed curbs on coal imports by its smaller ports while South Korea has announced plans to phase out old coal-based capacities and shift to gas-based and nuclear power.
But, weaker price projections would not trigger any immediate price cut by CIL, analysts say.
Pukhraj Sethiya, director (mining & metals) with PricewaterhouseCoopers (PwC) said, "In the last couple of years, domestic supply has improved. But, imports are still substantial in Indian's total thermal coal consumption. While in the longer run, CIL would be needed to cut costs to be more competitive, base prices may not be cut immediately. However, subdued import coal prices and sufficient supplies are reflective in reduced premium on the e-auction prices."
For CIL, the focus would be on upgrading the quality of output from its mines to improve realisations from FSAs (Fuel Supply Agreements) signed with the power companies. "Coal India has a chance to contain the grade slippage and improve its FSA realisations in case it progresses the quality of the output", said an analyst with the brokerage firm, Motilal Oswal.
CIL's average FSA realisation in Q1, on a quarter-on-quarter basis, dipped by nearly 13 per cent at Rs 1,201 a tonne. Company executives attributed it to grade slippage.