Coal India’s new strategy to save margins in a production-constrained market by capitalising on the quantum jump in spot prices of the dry fuel, has turned more aggressive.
The contribution of spot sales, or e-auction, to the state-owned miner’s total revenue saw a rise of 17 per cent in the first half of this financial year, compared to less than 10 per cent in the same period last year. This was even as the share of e-auction in the overall volume of coal sold remained stagnant at 10 per cent.
While the world’s largest coal producer adopted the strategy in 2010-11, the first half of this financial year was marked by a decline in production for the first time in the company’s history and an increase in the notified price in February. Both factors, experts say, should have made e-auction less attractive. However, that did not happen.
| COAL INDIA HY 2011-12 FACTFILE | ||
| April-Sept 2010-11 | April-Sept 2011-12 | |
| E-auction Volume (MT) | 20.2 | 22.7 |
| % of total volume sold | 10 | 12 |
| Average coal price at e-auction (Rs /tonne) | 1,808 | 2,693 |
| Notified price (Rs /tonne) | 920 | 1,600 |
| E-auction revenue (Rs crore) | 3,664 | 6,134 |
| % of total revenue | 9.8 | 17.5 |
| Source: Coal India | ||
In the first half of 2011-12, revenue from e-auction rose 68 per cent to Rs 6,134 crore, from Rs 3,664 crore. This was a result of the skyrocketing average sale price at e-auction, which doubled from Rs 1,808 a tonne to Rs 2,693, thanks to historic coal shortages, forcing more buyers to opt for the costly e-auction coal.
Coal India’s production remained flat at 431 mt last financial year. During the first half of last year, the company sold 199 mt of coal. Of this, 20.2 mt was sold through e-auction. Total sales stood at Rs 27,495 crore, of which Rs 3,664 crore was contributed by e-auction. Coal through e-auction was sold at a 73 per cent premium to the notified price of Rs 920 a tonne.
Between April and September this year, the company sold 176 mt coal, an 11.5 per cent decline compared with the same period last year. Of this, 22 mt was sold through e-auction. Total sales stood at Rs 35,499 crore, of which Rs 6,134 crore came from e-auction. E-auction coal was sold at a price of 68 per cent over the notified price. Notably, the notified price itself was increased in February to Rs 1,600 per tonne from Rs 920 last year.
Experts believe with coal shortage unlikely to subside soon, the boost to Coal India’s profitability as a result of increased realisation from e-auction sales is here to stay. While there has been substantial power capacity addition, coal production has risen only marginally, leading to a shortfall in linkage realisation, they say.
“The greater reliance of coal consumers on e-auction may have led to higher prices. Even on e-auction, some coal available has not been picked by the consumers for reasons such as availability of transport facilities and to some extent, concerns about quality. So, the quantum of coal available through e-auction has also been limited, which may reflect higher prices,” says Dipesh Dipu, director - consulting for mining at Deloitte Touche Tohmatsu India Pvt Ltd.
He says heavy reliance on e-auction sales for profitability may not be a concern, as “the coal market is likely to remain a sellers’ market for some time”. Globally, coal miners have moved from annual price contracts to quarterly ones and many have balanced their portfolios with a higher proportion of spot sales.
On the Bombay Stock Exchange, Coal India shares closed 1.1 per cent higher at Rs 334.4.
