Rise in global coal prices puts pressure on thermal power producers

Thermal power producers in India who are dependent on imported coal now face the tough situation of higher cost of production

Global coal prices have been on a steady rise in the last few months, increasing cost pressure for thermal power producers in India who are dependent on imported coal. These producers are now facing the tough situation of a higher cost of production, while the sale price for power continues to remain weak in India.

As of the end of January 2018, the price of 4,200 kcal/kg grade coal, a very popular grade bought by both India and China, has surged 33 percent to $49.25 per tonne as compared with the start of 2017 when it was assessed at $37 per tonne. This has resulted in higher sourcing cost for coal, which has increased from $55 per tonne to $ 60 per tonne in the last three to four months time.

As for every one dollar rise in coal prices, there is 20 to 25 paise addition to the cost of power generated. For Adani Power and Tata Power, the Mundra power units which signed up for a lower tariff agreement for power sold and unfortunately does not cover up for the rise in the Indonesian coal prices may end up facing a further drag on its financials.

Adani Power, Essar Power, Tata Power and JSW Energy are some of the companies which run power generation capacities on imported coal. On the other hand, power producers in India are also grappling with a coal shortage from Coal India, which could force companies to increase reliance on imported coal. While coal prices are expected to remain firm in the coming months, a lot will depend on China and how India works out its inefficiency in coal transportation.