Coal India starts auctioning supply contracts

KOLKATA (miningweekly.com) – Coal India Limited (CIL) has kick-started auctioning coal contracts to major sectors amid signs of jaded appetite among its consumers.

CIL completed the auction for the sponge iron-ore sector last week and has announced that the auction for the cement sector would start next week.

Coal supply linkages were being auctioned to user industries under a new government dispensation unveiled last February, under which users had to enter into competitive bidding for supply contracts.

The linkage auction was restricted to the so-called ‘unregulated’ sectors where the government did not determine end prices.

A notice inviting applications for 2.15-million tons of supply for the cement sector was issued on June 11, with the process set to start next week. This would be followed by auctions for other nonregulated sectors, including iron and steel, aluminium and others over the next few months, a CIL official has said.

Although not officially confirmed, CIL officials, on condition of anonymity, said that responses to auction for the sponge iron sector had been tepid, citing a plethora of reasons.

It was pointed out that while 3.78-million tons of coal had been earmarked for auction to the sponge iron sector, bookings at the auction amounted to only about 2-million tons. This, despite the yearly demand for coal from the sponge iron industry being estimated at eight-million tons, which was sourced exclusively from CIL, until now.

The officials declined to divulge the average sales price arrived at via the auction for supply contracts to the sponge iron industry. It is believed that CIL would net about 1% premium over the floor price of coal fixed for the bids.

Among the reasons cited by CIL for the sponge iron industry’s poor appetite was that domestic sponge iron producers were struggling to source their prime raw material, iron-ore, and under the circumstances, producers were hamstrung in aggressively bidding for coal supplies.

However, a section of the industry pointed out that unlike Tata Sponge Iron, which was successful in clinching a 24 000 t/y supply linkage at the CIL auction, the sponge iron industry was highly fragmented with a large number of small and medium-sized producers that did not have the financial muscle to bid aggressively at the auctions.