Tepid response to CIL’s first tranche of linkage auction for sponge iron

Kolkata, June 20: Coal India’s (CIL’s) first tranche of linkage auction for the nonregulated sponge iron sector posted a booking of 2.05 million tonne against the offer of 3.78 million tonne. The booking has been done for a contract period of 5 years, which can be extended to 10 years with mutual agreement between the supplier and taker.

A coal ministry official said on the condition of anonymity that the first tranche of auction was a low key affair since booking was much lower than what was offered. Sponge iron plants at present draw around 8 MT per annum from CIL. While the offer was less than 50% than that of the general demand, booking was even lower. Besides CIL could get only 1% premium on the floor price of coal per tonne.

Although the average auction price per tonne is yet to be worked out coal price across grades for non-regulated sector is 120% of the notified price of coal for the regulated sector. Different grades of coal have different prices and the linkage quantity was more or less booked at the floor price per tonne. However, average price realization could be between R1,300 and R1,400 per tonne, a CIL official said.

CIL chairman and managing director Sutirtha Bhattacharya told FE that the booking for sponge iron seems to be low because much of the sponge iron units’ fate depended on the availability of iron ore. So without ensuring supplies of iron ore aggressively bidding for coal wouldn’t have been wise thing to do on the part of sponge iron plant owners. “Anticipating that the demand would be low, the auction for sponge iron unit was kept first and with a conservative offer”, Bhattacharya said adding that high demand was expected in linkage auction for captive power, cement and fertilizer.

A total of 23.75 mt of coal has been put on the block for FY 17 for auctioning of linkage to all consumers belonging to the non regulated sector, of which only 3.78 mt was offered exclusively for sponge iron. Booking for sponge iron was 55% of the quantity offered. The next linkage auction would be for the cement sector where an offer of 2.15 mt would be made, an official said.

Non-regulated sector consumers’ account for approximately 25% of CIL’s entire off-take and this include captive power plants, cement plants, sponge-iron plants, fertilizer, chemical and many other industrial units. The move would benefit consumers of this sector not having linkages or whose Fuel Supply Agreements (FSAs) are expiring or got expired. Consumers of this segment would also get the opportunity of choosing specific grade of coal, preferred source of supply and preferred mode of transportation.