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India’s coal problems have reached a stress point, admittedly not from a
demand explosion (as was believed to be), but from a supply breakdown.
Admittedly, most of the supply problems have been caused by
one-off issues, like the strike at the south-based Singareni Coalfields
(~52MT coal production, around 9% of India’s total production), and the
severe weather related impact on Coal India’s (COAL) production and
off take. The recent strike at COAL’s mines have also not helped (with
media reports in DNA, suggesting further labor action likely as wage
negotiation tempo picks up).
For COAL, we believe, the most important variable to focus on the
short term is the strike at the Singareni Coal fields. The longer the
strike continues, the more pressure would be on COAL to supply to
the utilities to meet the deficit from Singareni. If the strike continues,
than this 1 month supply to utilities (from e-auction) could continue.
We estimate the 11-12% e-auction volumes account for 26% of
EBITDA for FY12E.
The problems have now made it to the front page of various Indian
newspapers, though as expected are focusing on the situation from the
utility’s view and highlighting the dangerously low level of coal stocks at
various state owned utilities. ET’s front page report highlights the
dangerously low level of coal stocks at the utilities.
Things have reached an inflection point; Key to see which road the
authorities take: The coal situation would ease from current stressed
levels as supply ramps up from the affected mines. However, demand is
only increasing, with many power plants currently not operating at
peak capacity, because of low availability of coal. In our view, there
are essentially two options for the decision makers and investors
across the coal user chain – Focus on meeting the demand of power
utilities and have everyone else fend for themselves OR to increase
total production by faster clearance, sale of coal by private miners,
investment in rail infrastructure.
We expect noise levels across the coal chain to remain high. As we
have highlighted in our recent research on COAL, wage negotiations
are likely to be a contentious issue this time, and there is the
possibility (low as of now) of more strikes at COAL.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India’s coal problems have reached a stress point, admittedly not from a
demand explosion (as was believed to be), but from a supply breakdown.
Admittedly, most of the supply problems have been caused by
one-off issues, like the strike at the south-based Singareni Coalfields
(~52MT coal production, around 9% of India’s total production), and the
severe weather related impact on Coal India’s (COAL) production and
off take. The recent strike at COAL’s mines have also not helped (with
media reports in DNA, suggesting further labor action likely as wage
negotiation tempo picks up).
For COAL, we believe, the most important variable to focus on the
short term is the strike at the Singareni Coal fields. The longer the
strike continues, the more pressure would be on COAL to supply to
the utilities to meet the deficit from Singareni. If the strike continues,
than this 1 month supply to utilities (from e-auction) could continue.
We estimate the 11-12% e-auction volumes account for 26% of
EBITDA for FY12E.
The problems have now made it to the front page of various Indian
newspapers, though as expected are focusing on the situation from the
utility’s view and highlighting the dangerously low level of coal stocks at
various state owned utilities. ET’s front page report highlights the
dangerously low level of coal stocks at the utilities.
Things have reached an inflection point; Key to see which road the
authorities take: The coal situation would ease from current stressed
levels as supply ramps up from the affected mines. However, demand is
only increasing, with many power plants currently not operating at
peak capacity, because of low availability of coal. In our view, there
are essentially two options for the decision makers and investors
across the coal user chain – Focus on meeting the demand of power
utilities and have everyone else fend for themselves OR to increase
total production by faster clearance, sale of coal by private miners,
investment in rail infrastructure.
We expect noise levels across the coal chain to remain high. As we
have highlighted in our recent research on COAL, wage negotiations
are likely to be a contentious issue this time, and there is the
possibility (low as of now) of more strikes at COAL.
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