Higher output could boost Coal India's spot sales, says Pramod Agrawal

"I think in the first half, we have done a little over 30 million tonnes. In the next half, our e-auction sales may go up to 40 million tonnes," Chairman Pramod Agrawal said

Coal India will increase spot auctions of the fuel in the coming months, the chairman of the world's biggest coal miner said on Monday, as the company's rising output has left them with enough fuel to meet increasing demand from non-utility power plants.

An increase in spot auction sales, which offer higher margins than its mainstay long-term contracts, will help Coal India to build off its record profit from this year and maintain a share price, which has climbed 25% since April and outpaced a 5.9% rise in the broader Nifty index.

Non-utility power plants refers to those that don't have long-term contracts, or that operate only for in-house consumption by industries such as aluminium smelters.

Graphic: Yearly Coal India's stock performance https://www.reuters.com/graphics/COALINDIA-SALES/byprlljzwpe/chart.png

 

"I think in the first half, we have done a little over 30 million tonnes. In the next half, our e-auction sales may go up to 40 million tonnes," Chairman Pramod Agrawal told Reuters in an interview at the company's headquarters.

The state-run miner, which accounts for 80% of the country's output of the fuel, typically supplies the bulk of its output to utilities as a part of long-term contracts.

Graphic: Coal India boosts production https://www.reuters.com/graphics/COALINDIA-SALES/gkplwwgolvb/chart.png

Coal out

However, with output growing by 16.7% this fiscal year, putting the company on track to achieve its annual production target for the first time in 16 years, Coal India was able to boost sales on electronic spot auctions - which offer higher margins than long-term contracts.

"We have made a lot of profits in the first half because of increasing overall production, not just because of auctions. You now have a window to sell to somebody else other than your main customers," Agrawal said.

Agrawal said Coal India intends to extensively partner with private companies to achieve its goal of producing 1 billion tonnes by March 2026, and by increasing the capacity of its existing mines and opening new mines.

The company plans to outsource to private companies mining and development of about 200 million tonnes of coal annually in four years, he said.

"Mining and development operators will help us in getting land, environmental and forest clearances, and liaising with the government on resettlement and rehabilitation issues," he said.

POWER DEMAND

Agrawal said he expects power demand to grow by as much as 7% in the fiscal year ending in March, which while down from the 9.5% growth from April to November, will spur higher auction sales.

"If the power demand growth remains within 5% to 7% range (in 2023-24), and we produce the targeted 770 million tonnes, auction sales will increase by another 3-4% from this year's levels," Agrawal said.

Coal India will continue to prioritize supplies to the utilities as "that is the need of the nation", Agrawal said, adding that the miner will look to boost supplies to long-term contract holders beyond current levels.

The miner helped shield Indian utilities and other coal users from the shock of record high global prices, and total imports were lower than initially projected as Coal India crucially ramped up production at a time power demand shot up to a record this year.

Graphic: Indian utilities' coal imports https://www.reuters.com/graphics/INDIA-COAL/IMPORTS/klpygkawkpg/chart.png

 

While a rapid surge in power demand was triggered by an uptick in economic activity and an intense heatwave during the first quarter of this year, in recent months electricity use has potentially surged due to higher industrial activity, Agrawal said.

"The sudden increase we have witnessed in November is because of the growth that has happened in the industrial states," he said.

Consumption in industrial states such as Tamil Nadu, Gujarat and Karnataka helped overall Indian power use grow about 12.4% in November from a year earlier, a Reuters analysis of government data showed. Growth was only 2.1% in November 2021.

Last month, power demand rose 26.3% from a year earlier in Karnataka, while electricity use increased 19.2% in Gujarat and 15.8% in Tamil Nadu, the data showed.

 

(Reporting by Sudarshan Varadhan; Graphics by Riddhima Talwani; Editing by Christian Schmollinger and David Evans)