Coal price puts CIL subsidiary in quandary

Mar13,2011 at 1042 hrs IST
By Indronil Roychowdhury

A 150% hike in prices of A and B grade coal has put Coal India Ltd (CIL) subsidiary Eastern Coalfields Ltd (ECL) in a fix. With the hike, the notified price will touch the premium price point it realised for supplies under a memorandum of agreement (MOA) and it can hamper consumers’ interest.

ECL has MOAs with NTPC, Damodar Valley Corporation (DVC), West Bengal Power Development Corporation (WBPDCL), CESC, Durgapur Projects (DPL) and SAIL to supply 7 million tonne of A and B grade thermal coal of 5,500 kilo calories, equal to the calorific value of imported coal.

The companies under the MOA, pay a premium price of R4,950 per tonne for A grade coal and R4,800 per tonne for B grade coal against notified prices of R1,600 (A grade) and 1,520 (B grade) per tonne for an assured supply.

But after a 150% hike, the notified prices for A and B grade coal has gone up to R4,000 and R3,990 per tonne respectively, which at the consumers end touches R4,947 and R4,799 per tonne respectively.

The hike will bring the prices close to the premium level. So ECL, according to sources close to the development, is considering to pin the MOA prices somewhere at R7,000 per tonne.

ECL is also thinking of scrapping all MOAs and supply coal at a notified price. This means there would be no assured quantity for any consumer and A and B grade coal, mostly used for blending, will get into the common pool of supplies.

According to the present MOA, scheduled to be revised on March 31, WBPDCL had asked for the highest quantity of 30 lakh tonne per annum followed by NTPC 20 lakh tpa, DVC 7.8 lakh tpa, CESC 7 lakh tpa, DPL 3 lakh tpa and SAIL 2 lakh tpa.

Except WBPDCL, all the companies have so far lifted almost the entire MOA quantity and WBPDCL’s off-take was 50-55% of the agreed amount, an ECL official said, adding that in cases of low lifting there is no penalty clause because there is huge demand.

Of CIL’s total production A and B grade coal production is only 7%.

According to the official, although R7,000 per tonne is an exorbitant price and consumers don’t want to pay up, ECL can still realise this price if it pushes it to the e-auction route without assuring any quantity to any consumer.

In fact, the floor price for e-auction is set at a 30% premium above the notified price, which means at the present notified rate floor price for A and B grade coal would be R5,200 and R5,190 per tonne respectively and a premium above that can fetch R7,000 or more for every tonne of coal.

So scrapping MOA would by no means be against the interest of ECL, but would hamper consumers’ interest, the official said. Krishna Gupta, managing director of WBPDCL, said even if Rs. 7,000 is a very high price, it is better than not having any assured supply. “In fact, in the MOA the quantity demanded is reserved and thereafter even if it is not lifted there is no penalty. If import prices are low, but there are problems of logistics and inventory, it may put stock position under pressure,” Gupta said. He said the impact of coal price increase would ultimately be passed on to the consumers.

CESC chairman Sanjiv Goenka said his company was aware that the price for MOA coal could go up to R7,000 per tonne, but it was waiting for an official communication and has not decided anything on it as yet. The ECL board would take a final decision on March 28, an ECL official said. ECL’s total production this fiscal is expected to cross 30 million tonne, marginally higher than its production in 2009-2010, he added.(sourced:Financial Express)

Tags : A and B grade thermal coal, Rs 4950 per tonne

US, world coal markets still assessing Japan earthquake impact

Mar13,2011/421 pm EST/2121 GMT

Washington(Platts): International coal markets were mixed on news of Friday's catastrophic earthquake in Japan, even as many participants tried to assess the potential effects of the disaster and resulting tsunamis.

The country imported about 165 million short tons of coal in 2009, making it the largest importer of both steam and metallurgical coal, according to estimates by the International Energy Agency. The quake comes at a time when Pacific coal markets have been particularly sensitive because of flooding and a recent typhoon that has curtailed Australian exports.

Coal market participants in the US and abroad said Friday that it was simply too soon to know how the earthquake might affect the country's coal-importing and coal-burning infrastructure.

The speculation drove up prices as Platts assessed Q2-11 Newcastle coal at $128.25/mt on Friday, up $2.35/mt. (See story, 2023 GMT). Coking coal prices across the Asia-Pacific markets, meanwhile, slipped.

Still, many were keeping an eye on the status of Japan's nuclear power plants, steel mills and import terminals.

"The Japanese are heavily dependent on coal-fired generation," Ted O'Brien, vice president of Doyle Trading Consultants in New York, said. "You could see thermal demand ramp up if there is any structural damage to the nuclear industry, but that is all dependent on their ability to import the coal."

While steel mills could likely continue operating with damage -- or, at least, continue stockpiling coal -- more sensitive nuclear plants had automatically shut down after the 8.9-magnitude quake that hit northeastern Japan at 2:46 p.m. JST (0546 GMT).

All seven units of Tokyo Electric Power's Kashiwazaki-Kariwa 8.2-GW nuclear power plant were shut down after a 2007 quake, the fourth of which was just reopened for commercial operation in February. Eleven of the country's 28 nuclear units had been shut down as of 2:30 p.m. GMT, according to the Nuclear and Industrial Safety Agency of Japan.

Coal accounted for 22% of the country's total energy consumption in 2007, ranking it second behind oil, according to the US Energy Information Administration.

Japanese steel producers, meanwhile, told Platts that at least one plant had been unaffected by the quake; while others had been closed, were operating at reduced rates or could not be reached by telephone. (See story, 1445 GMT)

Lower steel production could mean that coking coal is redirected to other countries, though reconstruction efforts would eventually increase the amount of domestic consumption, market sources said. The country is second only to China in both pig iron and crude steel production.

"That steel production will have to resurface elsewhere around the world and the coking coal demand that would have been taken by Japan would be supplemented by other countries," O'Brien said.

Japan ranked ninth among importers of US coal through the first three quarters of 2010, according to the Energy Information Administration. The 4.1 million short tons it imported from US producers accounted for about 4% of total US coal exports during that time.

--Peter Gartrell, Platts

Nippon Steel says resumes shipments at all but one steel plants

Sun Mar 13, 2011 7:54am GMT

TOKYO, March 13 (Reuters) - Nippon Steel said on Sunday that it has resumed shipments from all its steel plants except its Kaimishi facility in northern Japan.

It also said that it has started operations at two of three blast furnaces near Tokyo after an earthquake that hit the country on Friday. (Reporting by Yuko Inoue; Editing by Joseph Radford)

Developments after major Japan earthquake

Sun Mar 13, 2011 4:47am GMT

TOKYO, March 13 (Reuters) - Following are main developments after an 8.9 magnitude earthquake that struck northeast Japan on Friday and set off a tsunami.

- More than 1,800 people likely dead or missing from the quake and tsunami, Kyodo news agency says.

- Kyodo reports 10,000 people in one town unreachable.

* Tokyo Electric Power Company (TEPCO) says radiation levels at the Fukushima Daiichi nuclear power plant have risen above the safety limit but says this posed no "immediate threat" to human health. An explosion blew the roof off the plant, but authorities had said radiation levels were lessening.

* Chief Cabinet Secretary Yukio Edano says efforts to eliminate radiation risks focus on air being being vented out of the reactor and water being supplied to it.

- Evacuation ordered of 110,000 from 20-km (12-mile) radius around the Fukushima Daiichi nuclear power plant, 30,000 from 10-km (6-mile) radius around nearby Fukushima Daini plant. Kyodo says 300,000 evacuated overall, 5.5 million without power.

* Jiji news agency says a further 19 people may have been exposed to radiation from the reactor. The nuclear safety agency had earlier said up to 160 people may have been exposed.

- Nuclear safety agency rates the incident a 4 on the 1 to 7 International Nuclear and Radiological Event Scale, less serious than Three Mile Island, which was a 5, and Chernobyl at 7.
- Quake triggers tsunami up to 10 metres (30 feet). Waves swept away homes, crops, vehicles and submerged farmland.

- Bank of Japan to hold policy meeting on Monday. The central bank vows to ensure financial market stability.

- Toyota Motor Co to suspend operations at all 12 factories on Monday.

- Total insured loss could be up to $15 billion, equity analysts covering the industry say.

- Disaster sends oil, metals, and grain prices sliding on fears over its impact on demand, deepening their biggest decline in months; yen rises broadly on risk aversion by Japanese investors and expectations of repatriations by Japan's insurance companies; oil prices slide more than $3 a barrel.

- Tokyo Stock Exchange to trade as normal on Monday. (Tokyo bureau; World Desk Asia, Singapore +65 6870 3815)