Coal India Says Output May Suffer Without a Price Hike

(Bloomberg) -- State-run miner Coal India Ltd. warned production of the fuel may be hampered, risking new threats to the nation’s energy supply, if the company isn’t able to raise prices.

The world’s largest coal producer is facing cost pressures from a looming rise in salaries and on higher prices of diesel used to power mine equipment. Some of the company’s units are finding it “difficult to survive without a price hike,” Chairman Pramod Agrawal said on a call with analysts.

Raising coal prices included in long-term supply agreements would require backing of the government, which weighs the impact of higher rates on the country’s inflation and broader economy.

Coal India continues to be under government pressure to maintain supplies of the fossil fuel, which the country relies on for about 70% of electricity generation. Coal inventories at power plants tumbled late last year as mine output lagged demand, triggering power outages and supply curbs. 

While coal reserves at power plants have risen from a low in September, when they could last only for four days, they are still only about a third of an April 2020 high, and power demand will increase as India approaches summer. 

A “price hike should take place immediately, it has become very urgent for Coal India,” Agrawal said on the Thursday call. “Otherwise, coal production in the country will suffer.”

While seeking to protect the bottom line, the miner will consider the impact of a price increase, since cost of coal has an influence on various commodities, it said in a statement Saturday. 

Coal India expects to supply 670 million tons in the fiscal year ending March, almost 17% higher than a year earlier. For the following 12 months, the company has set a shipment and production target of about 700 million tons. 

The company is going “full throttle to push up its output and would in no way jeopardize that stance.”

With efforts to replenish stockpiles for electricity generators being prioritized, other industries are complaining of supply shortfalls. Coal reserves at power plants used by aluminum producers are at an average of three to four days, down from a typical level of 15 days, according to the Aluminium Association of India.

(Updates with company comment in seventh and ninth paragraphs)

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