Till last year, state-owned Coal India Ltd (CIL) was in the firing line for not producing enough coal. But, as 2015 draws to a close, the company is struggling to find enough buyers.

As the miner entered the peak production season, inventories started piling up. CIL was successful in maintaining the inventory at last year’s level till November, but not anymore.

Till the third week of December, demand from steel and cement sectors remained stagnant at last year’s level. Unless there is a dramatic industrial recovery, the share of these two sectors in total sales will be down from 20 per cent last year.

Drop in realisation

Since the steel and cement sectors offer 40 per cent higher price than power utilities for the same grade of coal, a drop in their share in total sales will limit the prospects of CIL’s profit growth.

The bottomline is also under pressure due to low realisation from e-auction of fuel due to soft global coal prices. Between April and November last year, the e-auction prices were 70 per cent higher than the notified price of fuel or the price at which CIL caters its contracted consumers.

This year, the realisation is merely 38 per cent above the notified price. It means despite a volume growth in e-auction sales from 22 million tonnes to 36 mt, the contribution to profit will not improve much.

With the company’s bank interest earnings from idle cash reserve also declining, CIL will depend solely on volume growth to the power sector for higher profits.

Apparently, Coal India is doing that.

In November, total thermal generation went up 1.28 per cent. But Coal India’s total sales were up 9.8 per cent. Sales to the power sector grew at a faster rate. The trend continues unabated in December. CIL is maintaining the off-take growth while electricity generation is lagging way behind.

The clue lies in coal stock position at thermal power stations. In November, the power sector had an average stock for 21 days.

The stock improved to 23 days on December 17. The average inventory at the same period last year was barely seven days.

In other words, despite a lacklustre demand outlook, the electricity generation sector is blocking more money on fuel inventories than it ever did.

State-owned power major NTPC is leading the trend. Though located at pithead, NTPC plants are maintaining two to three weeks fuel stock, significantly higher than last year. Normally such utilities keep a week’s stock for better capital utilisation.

Asked if NTPC is bailing out the miner, a company spokesperson referred to Central Electricity Authority guidelines prescribing two weeks’ fuel stock.

Some State sector utilities located near the mining zone are, however, refusing to follow the norm. The State generation utility of West Bengal is maintaining a week’s stock, similar to last year.

Industry demand

According to an analyst with a foreign bank, the low generation growth is a direct fallout of low demand for electricity from the industrial sector.

“In the past, people blamed the State distribution utilities for failing to cater to the demand due to liquidity crisis.

“However, repeated tariff revisions in most of the States, except in UP, have improved the overall financials of discoms. If they are still not buying electricity, it only indicates poor demand scenario,” the analyst said.

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