Sunday, September 6, 2009

Coal Selling At Premium In E-Auctions

There is total lack of buyer interest in Coal India Ltd’s recently launched forward e-auction platform, reportedly due to the high reserve price. The coal produced by loss-making underground mines is offered on this forward platform with the reserve price being double the notified price. Participation in the platform is limited to end consumers.

So far two rounds of bidding have been conducted on the platform, launched in August. The first round witnessed a single purchase deal of a mere 1,200 tonnes against a total offering of over five lakh tonnes by Western Coalfields Ltd. In the second round, there was no buyer for the offerings by Eastern Coalfields Ltd.

“So far buyers have shown little interest in the offerings at the forward e-auction. We will keep offering more coal into the platform during next few rounds throughout this month,” a company source told Business Line. “If the situation fails to improve by the end of this month, we may have to review the exercise,” the sources said.


Meanwhile, the company’s spot e-auction is witnessing strong demand from customers with the average premium over notified prices improving marginally between April and August over the corresponding period last year.

Against an average premium of 52 per cent over the notified prices (varying from Rs 400 to Rs 2,800 a tonne) in 2008, CIL sold coal at 53.2 per cent premium. The company expects the average premium to increase to 55-56 per cent by end of this fiscal.

Though, theoretically, the two commercial coal producers in the country – CIL and Singareni Collieries Company Ltd – are allowed to sell at prices determined by their respective boards, in practice they sell coal at artificially low government-approved prices, known as the notified price.

As the last revision of notified price took place in 2007, the spot price is considered as a more realistic. According to CIL sources, in addition to small and medium enterprises, major buyers such as Hindalco, Bhushan Steel and others participate in the spot auction.

Authorised to sell 10 per cent of its production through e-auction route, CIL sold approximately 40 million tonnes in 2008-09. The offerings may increase this year, keeping in tune with higher production targets.

Source: The Hindu

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