ANZ Bank, Goldman Sachs, UBS, Citigroup, Merrill Lynch and five other global analysts have forecasted that Asian coal prices will fall by 20% in 2009. However, against the analyst price fall warnings, coal prices in India have increased which is likely to put more pressure on power and cement sectors.
"Depending on the contribution to the cost of production, the affect of the hike in coal prices will also affect the cost involved accordingly," said Rakesh Dubey from mJunction which is one of the largest online dealers in India. He said that the power industry is going to take a hit of 15% and cement will see around 30% hike in production cost.
Coal India Ltd increased coal prices by 11% in September/October, thanks to sharp increase of thermal power projects in India. Asia is the largest consumer of coal and accounts for 4,800 million tonnes (MT) out of world consumption of 7,000MT.
Power industry consumes around 300MT of coal every year and accounts for 75% of total coal consumption that produces around 475 billion KWh of electricity. The indicative price increase is around 15% and largely depends on power plant distances from coal mines. "The power utilities will calculate the input cost in production and accordingly they will fix the tariff," added Mr Dubey.
The cement industry with capacity of 198.3MT consumes 3% of coal as raw material. Around 12MT of coal is used in this industry and accounts for 30% of the cost of cement production.
The coal price rise is substantial as cement prices were still close to Rs 3,670 per tonne during September 2009. Since cement is facing the market resistance, it has to bear the additional cost on coal.
The steel industry with an annual capacity of 60MT also uses 3% of total coal. Since coal price hike is not substantial in total cost of steel it will not affect the pricing of steel. Though coal is vital to the power sector, the major casualty of the recent hike in coal prices would be the cement sector.
The power utilities would be in a position to pass on the difference in prices to the customers; this is not possible for the cement industry. Given the current low demand in the cement market, the cement units are unlikely to pass the hike in coal prices to their customers.