Power firms reap benefit of cheap imported coal
Nov 11 2012 , Mumbai
Firms see prices falling to $55 in coming months
JSW Energy and Reliance Power, for example, which have reported their second quarter results, have seen a four to 12 per cent drop in fuel cost since the first quarter. Adani Power and Jindal Steel and Power too are expected to benefit from easing coal prices.
Coal prices were around $120 a tonne last year but have since dropped to $80. Power company officials expect the prices to drop further to $55 in coming quarters, as demand weakens, especially in China and the United States.
In particular, companies badly stressed due to higher fuel bills of imported coal can breath easy now.
Analysts say even companies, which import coal, but do not have long-term contracts will benefit too. Only those trading in coal from their mines in Indonesia and Australia — such as Tata Power and Adani Enterprises, the holding company of Adani Power — may see a fall in margins from their mining operations.
Bhargav B, senior power analyst with Ambit Capital, said coal prices were expected to remain low till the revised pricing of imported coal was sorted out. Moreover, demand in China for Indonesian coal has fallen considerably and the Japanese demand for thermal coal has not picked as much as expected after the Fukushima nuclear incident.
In India power generators have been operating at a lower plant load factor (PLF) of 68 per cent because pricing of coal from Indonesia, Australia and South Africa has made generation unviable. Distributors refuse to buy costly power leading to large-scale load shedding in various states.
A senior industry official told Financial Chronicle that prices of certain varieties of imported coal like those below 6,000 kcal from Indonesia are expected to drop to $55 freight on board (fob) by next quarter. “The fob prices of Indonesian coal have already fallen to $65-$67 and will drop further,” he said.
Reliance Power saw a sequential drop of 12 per cent in its fuel cost to Rs 637 crore, even as power generation grew. However, its first unit of the Rosa plant was shut for 65 days, which also led to less coal consumption. The company’s only operational plant at Rosa meets 40 per cent of its coal requirement with imports.
JSW Energy, almost fully dependent on imported coal and with very little domestic linkage, turned profitable in the second quarter as coal prices dropped by 30-40 per cent. Sequentially, JSW Energy’s fuel cost fell by four per cent to Rs 1,100 crore from the first quarter’s Rs 1,155 crore.
Tata Power, notching up losses due to costly coal from Indonesia, saw its fuel cost rise six per cent sequentially. But the company generated more power and sales rose 12 per cent to 4,235 million units from 3,793 million in the first quarter.
Bhargav said weak demand would keep coal prices low at least in the current quarter, despite the fact that huge inventory had been built in Indonesia, which planned to sell only 15 million tonnes out of 19 million tonnes mined.
Tata Power on Thursday acquired 26 per cent in an Indonesian miner P T Baramulti Sukses Sarana (BSSR) for Rs 750 crore. This will give them long-term supply security for its existing and some of the upcoming power plants, including at Mundra and some projects in Maharashtra.
Salil Garg, India Ratings & Research director, said companies could have a temporary reprieve in terms of prices. Coal prices had been so volatile that without a long-term contract, the reprieve might not last long.
(The original text in this content has been updated to incorporate rectification of typographical, factual or datapoint errors or to add requisite attributions which may have got dropped in the first instance.)