Coal news and updates

‘Poor’ response to linkage auction for sponge iron so far

A soft trend in international coal markets, coupled with a not-so-encouraging situation in India’s economy and excess availability of domestic coal appears to have led to a lukewarm response in the auction of coal linkages for the sponge iron sector so far (till June 15), industry sources said.

The government had decided to put up coal linkages to non-power sector consumers on auction to bring in transparency in the way linkages are given to consumers.

The government had felt that the earlier system of allotting coal linkages through the standing linkage committee (SLC) route was not fair as the system, according to the government, was not transparent.

Of the total 3.56 million tons (mt) of coal offered to sponge iron consumers between June 10 and June 15, only 2.04 tons have been allotted and only one lot for a small quantity had attracted a premium of Rs 25 per ton over the notified price, they said.

“Earning premium over the notified price was never the objective when it was decided to conduct the auction for linkages. The challenge before us was to check whether the new system will work or not. That the mechanism has worked is the main point,” said an official from Coal India Ltd (CIL), which conducted the auction through a service provider, which was appointed on nomination basis.

SBI Capital, which was appointed by the Ministry of Coal at the beginning of 2015, had suggested the mechanism for conducting a linkage auction, ignoring some of the practical suggestions given by stakeholders (coal consumers) in various meetings, the sources said.

SBI Capital was also believed to have indirectly recommended that there should not be any tender to appoint a service provider to conduct the linkage auction and as such the service provider was appointed on nomination basis.

According to industry sources, a total of 750,000 tons of coal was offered on June 10, the first day of the linkage auction for the sponge iron sector, but only 432,000 tons got booked, which means there was no scope to command any premium as the entire quantity was not booked.

On the second day of the auction, ie, on June 11, a total of 1,045,000 tons was offered, but here too only 292,000 tons of coal found takers, they said.

However, on the third day of the auction, ie, on June 13, a good response was witnessed as around 1,044,000 tons from the entire offered quantity of 1,130,000 tons, was booked.

Only in the first lot that was offered on June 13, a small premium of Rs 25 per ton was realised while the rest of the offering was settled at the notified price itself, they added.

According to industry sources, the response on the fourth day of the auction, ie, on June 14, was also slightly better. In the first lot of 270,000 tons that was offered on this day, as much as 252,000 was booked, but there was no premium.

In the second lot on the same day, a total of 22,000 tons was offered and the entire quantity was booked at the notified price, ie, there was no premium here either.

In the third lot of 100,000 tons on June 14, there was no bid either.

However, on the fifth day of the auction, ie, on June 15, as much as 245,000 tons was offered in the first lot, but there was no bid, they said, adding another 58,000 tons was offered for booking at 1700 hours, but the outcome was not immediately available.

The last round of auction would be held on June 16 in which around 160,000 tons of coal will be offered.

CIL had decided to offer 3.78 million tons of coal to the sponge iron sector under linkage for booking through auction and till 1630 hours of June 15, it had offered 3.56 mt.