Coal news and updates

This summer didn’t augur well for Indian Railways. Last year, it survived the sluggish growth in freight volume, riding on spurt in coal cargo that accounted for 50 per cent of the total railway freight in the year 2015-16.

But this year has been different. As against the projected 10-11 per cent rise in coal cargo in this scorching heat when electricity demand has been above the anticipated volumes, coal freight grew by barely two per cent in April-May.

This is because CIL failed to stick to wagon booking plan as coal consumers, mostly power generation utilities, refused to lift more fuel.

Two-pronged strategy

To ensure adequate supply of fuel to power plants, CIL last year adopted a two-pronged strategy to focus on rail evacuation and even out the wagon loading pattern all through the year. This is to avoid the end season (January-March) rush when wagons are in short supply due to heavy demand from the farm sector.

Accordingly, the miner loaded 206 rakes a day in the April-June 2015 quarter. This was 18-20 rakes (10-11 per cent) a day more than the corresponding period of the previous year and up 12 rakes a day (six per cent) from the annual average of 2014-15.

CIL ended 2015-16 with nearly 9.4 per cent growth in railway loading average to 213 rakes a day, higher than 8.8 per cent growth in offtake during the year, resulting a marginal rise in the Railways’ share in domestic coal freight.

Naturally, Indian Railways was ready to oblige CIL this year. Going by the projections, it stepped up allocation by nearly 20 rakes a day for April-June quarter this year.

But to IR’s dismay, the state-owned miner could load a mere 210 rakes a day in April-May, up by a mere two per cent compared to the same period last year. “The Railways is now pushing us for more orders,” a CIL official told BusinessLine.

The trouble was entirely a creation of CIL. To push up sales, they stuffed power sector with more coal than required last year.

The supply pressure from CIL was particularly high in January-March season, when coal stock at power plant reached up to 29 days, against the mandatory requirement of 21 days on an average.

Such high inventory is a drain on generation sector balance sheet as the finance cost of holding coal stock is not recoverable through tariff. Also, as India is adding more pit-head capacities, there is growing resistance to hold such huge stock.

The end result is cash strapped power stations decided to go for stock dilution this summer. From 26 days on April 4, the stock position reduced to 24 days end of the month and down to 22 days on May 24 — diluting nearly seven mt inventory (from 39 mt to 32 mt) in two months.

Monsoon impact

With the projected onset of the monsoon on June 7, CIL doesn’t see much upside in offtake growth till October. If the monsoon is adequate, as is predicted, coal demand may remain lower than projected in the winters, due to higher availability of cheaper hydro electricity. Of course, CIL can once again push power sector to build up coal stock but it is questionable if that alone will be able to push up freight growth to the desired level, unless of course the country witnesses a dramatic recovery in industrial production.

Source: The hindu business line