Non-power sector hopes coal will be a ‘non-issue’ this summer

Coal

Non-power sectors, including cement and metal companies, are hoping that proactive steps by the government, Coal India’s increased production and industry’s captive mining capacity will ensure there is no repeat of last year’s coal supply shortage this summer.

“Coal India is well prepared this time,” said a senior industry executive from the metals sector who did not wish to be identified. In January, Coal India’s production was up 11.5 percent from the same month last year, with output at 71.9 million tonnes (MT) versus 64.5 MT a year ago.

Satyadeep Jain, an analyst at Ambit Capital, also pointed out that coal stock positions at power stations look better than the levels seen a year ago. Jain added that the government has also taken proactive steps like imposing Section 11 of the Electricity Act, 2003, early on.

Earlier this month, the government re-imposed the emergency clause, asking all imported-coal-based (ICB) power plants to operate and generate power at their full capacity in the summer months. The power ministry expects peak power demand to touch 229 gigawatts in April.

Last year, the government prioritised electricity generation to meet the spike in demand in the face of severe heat waves across large parts of the country, which meant that other companies that use coal as feedstock were left high and dry.

“Whether non-power sectors will face a coal shortage depends on multiple factors such as Coal India’s production, rake availability and El Nino’s impact,” Jain from Ambit said.

In addition to Coal India’s increased production, the private sector has either started production or will start production from some of the coal blocks won in earlier rounds of coal mine auctions, said the industry executive quoted above. “A combination of coal supply from Coal India, increased production for mines that private companies will start operations from and with imports, supply should remain stable this summer,” the executive said.

Metal and mining companies have dominated the last few rounds of coal block auctions, with Vedanta, Jindal Steel and Power, Twenty First Century Mining and Adhunik Power and Natural Resources, among others, in the winning bidders’ list.

Others like Hindalco Industries earlier said they have higher coal stocks than last year. The company is starting to hold a higher number of inventory days for coal, managing director Satish Pai said in a post-earnings media call earlier this month.

For the cement sector, manufacturers like Shree Cements said supply and rake availability so far have been stable. “Power demand is definitely high, but we have so far not faced any issues on coal supply or on rake availability,” said vice chairman Prashant Bangur. Asked about any proactive steps taken to ensure lower impact in case of a disruption, Bangur said, “Summer is peak demand season for the cement sector too, so we typically hold higher coal stocks in that period, and we will do that this year too. Further, Shree Cement has a higher dependence on imported coal.”