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• Nov sees no respite for Coal India: Based on the data available so far (Nov
28th), Coal India (COAL) production growth remains anemic with YTD
production growth at 1% y/y with YTD Nov-10 production at 256MT (FY11E
production target is 460MT). Coal offtake has been relatively better with 3%
y/y mainly on account of the inventory levels. The subsidiary with the biggest
miss against target is MCL (Eastern India, accounted for 24% of COAL’s FY10
prod) whose Nov production at ~61MT is 25% below target and offtake was 9%
below target. We believe issues relating to CEPI (MOEF's new guidelines on
pollution index) have impacted some of the mines of MCL. The other key
subsidiary where both prod and offtake is significantly below target is NCL
where we believe is more due to railway wagon availability issues. Overall
Indian coal production YTD till Oct was flat y/y increase while off take
growth stood at 2% (COAL accounted for 81% of YTD-Oct India prod and
84% of dispatches). All India coal closing stock stood at 50MT. India’s coal
imports YTD Nov stood at 34MT v/s 32MT last year, as per Bloomberg.
• Coal India update- Coking coal prices settled up; e-auction premiums
strong- As per media reports (CNBC, Coal Market Watch) coking coal prices
have been settled between COAL and its customers. We believe new prices are
near Rs7500/MT compared to Rs6400/MT earlier. While granular e-auction data
is not available, we believe premiums for COAL are steadily rising (we estimate
premium over notified coal price is in the 70-80% range). Given the trend in
global spot coal prices, we believe this trend is likely to continue.
• Utilities update: JPM Utilities team in their update-'Know your Power’ dated
24th Nov-10, highlight capacity addition of 7GW YTD against CEA target of
21GW in FY11. They believe that a lot of ‘capacities would get bunched up
over the next 3 years’.
• Coal stock situation at TPP: As per CEA, 27TPs had critical coal stock levels
(<7 days) while 14TPs had super critical stock levels (<4 days) driven by lower
imports and lower receipt of coal (please see page 2 for more details).
• Coal, Environment and the Railways: We believe the two critical key issues
relating to coal production and offtake are a) getting the regulatory
environmental approvals in time and b) having a robust evacuation infrastructure
(chiefly Rail) in order to cater to India's increasing coal demand.
• Latest MOEF circular highlights increasing focus on coal: The MOEF’s
circular dated 1st Nov-10, in our view, highlights the increasing importance of
firm coal linkages and for getting MOEF approvals for projects.
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