Coal India Profit under pressure as e-auction premium falls

08 May 2017

Realisation from spot e-auctions drops to an average 25% in FY17 premium over its standard notified prices from 33.5% a year ago

In what could be seen as an indication of continuous depression in coal prices, Coal India’s realisation from spot e-auctions has dropped during the fiscal year 2017 to an average 25% premium over its standard notified prices from 33.5% a year ago.

This is a far cry from a handsome 60% premium enjoyed by the mining giant in FY15.

The premium has dropped sharply from that level despite a fall in the amount of coal available for spot-auctions from 57.4 million tonne in FY16 to 53.83 million tonne in FY17, a report sent by coal ministry to the Cabinet has disclosed. “Drop in e-auction realisation due to sharp reduction in imported coal price leads to reduction in average sales realisation,” Coal India has recently said in an investors’ presentation based on its FY16 figures.

The presentation was made to investors after some media organisations, including DNA Money, reported about the downgrade of some of Coal India’s mines. Falling e-auction realisation, coupled with the downgrading of some of its mines would put added pressure on Coal India’s profitability this year.

While most of the sales by Coal India in a year happen at long-term contracted notified prices, it’s the realisation from e-auctions, mostly sold as spot and a little quantity through forward auctions that brings in the profits.

The coal behemoth had sold around 543.2 million tonne of the fossil fuel in FY17.

While it is now government’s stated objective to substitute imported coal mostly shipped by power companies, the report shows that supplies to power plants have risen just 1.3% during FY17 at 420 million tonne. In fact, supplies in the month of March, at 34.6 million tonne, dropped 7% over previous year’s level.

The current financial year has also started on a depressing note for Coal India with production in April dropping 4% to 38.44 million tonne from a year ago, the state-run near monopoly miner disclosed to the exchanges on Tuesday. The company, which accounts for over 80% of domestic coal output, had earlier set a target of 43.58 million tonne for the first month of the year.

The off-take or supplies, however, were higher by 1.06% at 45.29 million tonne in April.

Even with production target for FY18 being brought down from 660 million tonne to 600 million tonne, Coal India needs to grow its output at 8% in the current year.

Source- dnaindia