Coal India eyes record electronic auction sales

India's state-controlled producer Coal India is aiming to raise the amount it sells through electronic auctions in an attempt to lift its revenues, which have been hit by the Covid-19 pandemic.

CIL, which supplies more than 80pc of India's coal requirements, plans to sell an all-time high of 120mn t of coal through e-auctions in the April 2020 to March 2021 financial year, up from nearly 66mn t in 2019-20.

It sold 81.4mn t through such auctions in April-December 2020, up by 35.2mn t from the same period a year earlier. This means CIL would have to sell close to 13mn t/month in January-March to meet its goal.

Company revenue fell to 396.4bn rupees ($5.41bn) in April-September from Rs453.22bn a year earlier, although an increase in the base, or reserve, price for e-auctions from October onwards should provide some support to its 2020-21 earnings.

CIL had kept the base price almost at the same level as its notified price — the price of coal sold under long-term supply agreements — until September, amid weak demand during India's Covid-19 lockdown. The low base price was also part of government efforts to attract customers to CIL's mid- to high-grade coal, rather than opting for imports.

The premium to the notified price gained momentum in October-December and hit a high of as much as 40pc at one of CIL's subsidiaries.

Non-power sector consumers such as cement and sponge iron firms have been steady buyers of coal through the e-auctions and CIL is looking to raise its sales to this segment of consumers.

The move also comes as CIL's key consumers, mainly utilities, are sitting on high coal stocks, which is weighing on fresh demand for CIL's coal.

Utilities across the country had total inventories of 37.56mn t as of 31 December. This was well below highs of over 50mn t a few months earlier but up slightly from 37.4mn t at the end of November and 33.94mn t at the end of October.

The move to expand sales through e-auctions also comes after CIL's overall supplies to consumers fell in December, after rising for four straight months. Production growth has also softened, given an uptick in the company's own stocks in recent weeks. CIL is seeking to avoid a further buildup of stocks.

CIL's inventories were at 59.3mn t at the end of last month, down from highs of around 78mn t at the end of May but up from 53.5mn t at the end of November.

The high domestic stock levels along with India's efforts to discourage the use of imported thermal coal are expected to weigh on seaborne receipts. India's thermal coal imports look set to contract in calendar year 2020.

By Saurabh Chaturvedi