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Indian coal traders feel pinch of rupee depreciation

September 5: A large number of Indian coal traders are in a difficult situation as the time comes for payment against purchases of coal made from international companies four-five months ago because of a sharp depreciation in the rupee, an industry expert said.

"The position of many traders, especially those who had not hedged their imports in US dollars, is extremely bad after the rupee depreciated to Rs 68 against one dollar. This is so because they might have imported the material say in April-May when the rupee was at Rs 54-55 to one dollar and had sold the material back then at the prevailing market price, making a profit of $1 or $2 per ton. But now they have to make the payment against those purchases when one dollar is equivalent to Rs 68," he said.

Explaining the point, he said, it is like a trader had received delivery of a consignment in April-May when the price was $80 per ton and one dollar was equivalent to Rs 54 (Rs 4,320 per ton), but payment against those deliveries might be taking place now when one dollar is equivalent to Rs 68.

"This mean, the concerned trader might have sold the material at about Rs 4,430 per ton, taking a margin of $2 per ton. But now, in case he had not hedged the dollar back then itself, the cost for him for the coal received in April-May would go up to Rs 5,440 per ton, which is a straight loss of around Rs 1,000 per ton," the industry official said.

 "If you go by this, the traders would have to incur a loss of around Rs 800-900 per ton only because of the depreciation in the rupee even as they would not have made a profit of more than Rs 100-200 per ton," he added.

The official further claimed that most of the traders in India do not hedge their trades and those who might have not done so would be severely affected.

"I think, almost all the leading traders are facing a similar situation. I have heard that one of the leading Indian traders has booked an exchange loss of Rs 200 crore recently. If the reports are true then many a trader would face a situation of complete erosion in their net worth" the expert official added.

Having burnt their fingers, most of the traders are now opting for hedging of US dollars in a big way, the expert said.