Domestic Coal Prices Remain Stable Despite Global Price Surge

06 Dec, 2023

Domestic Coal Prices Remain Stable Despite Global Price Surge

Coal India Ltd has no immediate plans to alter its coal prices despite the widening gap between domestic and international rates, according to an official source speaking with FE. The company's decision not to pursue increased margins presently bodes well for both the power sector and electricity consumers, potentially helping stabilize fuel inflation.

"The revision of prices isn't currently under consideration. We need to weigh various factors like electricity pricing and the overall economy before contemplating price revisions," the source stated.

However, analysts anticipate that the robust international coal prices could influence e-auction prices domestically. Currently, domestic prices stand at a discount of 40-50% compared to global markets.

"We revised prices four years ago, and there were rate adjustments for certain grades last year," the source mentioned. Coal price revisions by Coal India are predominantly influenced by worker wages, revised every five years. "The typical rise in wages due to allowances usually gets absorbed by productivity improvements," noted Partha S. Bhattacharya, former Chairman and Managing Director of Coal India Ltd.

E-auction prices are on the rise due to an upswing in Indonesian coal prices. Experts predict that higher international prices will further bolster domestic e-auction coal rates.

Indonesian coal prices (4200 kcal) surged by 17% since August, reaching $58.94 per tonne, as per ICICI Securities. "Increasing costs for Indonesian players may support prices," the firm stated in its recent report.

Despite India's increased coal production, elevated imports from China are anticipated due to mine closures for safety audits and reduced hydro-power generation.

With over a fifth of coal consumption met through imports and a nearly Rs 3.9 trillion import bill last year, e-auction sales constitute roughly 15% of the domestic coal market.

As of November in the current financial year, Coal India produced 460 million tonnes, marking an 11.5% increase from the same period last year. November alone witnessed an 8.8% growth in production, totaling 66 million tonnes.

Analysts highlight that the company's pithead inventory in November, standing at 45 million tonnes, suggests it can meet additional coal demands.

ICICI Securities projects Coal India's volume growth at 751 million tonnes for the current fiscal year, expecting potential upward revisions in estimates by at least 20%.