Coal news and updates

Even a 25 per cent fall in imported coal prices has failed to turn around the fortunes of domestic power and coal producers. Though raw material expenditure in both power and steel sectors fell due to this price decline – the fall in commodity demand and rupee value more or less negated the fall in imported coal prices.

 

Recently, Steel Authority of India (SAIL) chairman announced that it gained close to Rs 900 crore due to the slump in the imported coking coal prices. But SAIL is really an exception. Jindal Steel and Power Ltd. reported over 40 per cent drop in net profit, Bhushan Steel's net profit fell close to 70 per cent in the quarter gone by.

 

Even the power producers have not gained dramatically with the fall in imported coal prices. Earlier this year, one tonne of imported coal cost anything between $95-105 and today the same is around $75. The perennial domestic shortage coupled with spike in coal prices and change in export policies of countries that India was importing from, both power and steel were struggling to meet ends meet in the first half of FY 14.

 

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The spike in prices and policy changes in countries like Australia and Indonesia had led to protests from Indian power producers who in turn appealed to authorities to permit cost pass-through as fuel costs had made it unviable for them to provide electricity on the contracted prices. In response the Central Electricity Regulatory Commission (CERC) decided to permit the cost to be passed on to the consumers on a case by case basis.

 

While the current fall has not done away with all the woes of the coal dependent sectors, it has helped reduce expenditures. Kameswara Rao, Leader Energy Utilities and Mining, PwC India believes the benefits of this are limited as coal pricing and its impact is more complicated than a simple demand and supply market move. He says the fall can be viewed as a ‘glass-half-full as well as glass half-empty’ situation. According to him as a large number of projects were designed on much lower rates of $65-70 per tonne and even though as compared to April these are spending lesser, the power plants are still paying more than envisaged initially. The low prices have helped those involved in spot buying says Rao.  

 

However, Tata Power’s MD Anil Sardana says the fall in Indian rupee negated the impact of the fall in coal prices. While the pass through was granted to Adani Power in Gujarat, Tata’s Mundra plant is awaiting CERC clearance of their application. And the company has oft highlighted the loss due to the increase in imported coal prices, which are said to be costing Tata power close to Rs 1900 crore annually.

 

Corroborating Tata power claims, Ashok Khurana, director general of Power Producers Association of India explains that over 20 applications are still pending with the authority. He adds that since the coal pricing is all demand-supply based, the fall in prices is largely based on the fall in demand from countries like China and USA. “With the shale gas revolution in the US -- where from $8-9, gas is now available at close to $2 -- demand for coal has substantially reduced. As a result, there is more coal available in the market than there is demand for,” he says.

 

 

Source: http://www.businessworld.in/