Coal India’s Output Drops Second Month Amid Weaker Power Demand

  • Output drops 5.2% from year earlier, shipments decline 6.6%
  • Lack of demand may result in narrower margins: Emkay analyst

Coal India Ltd.’s output fell year-on-year for a second consecutive month in September, signaling demand from power plants, its biggest consumers, remains weak.

Production at the world’s biggest miner of the fuel declined 5.2 percent from a year earlier to 35.24 million metric tons in September, while shipments fell 6.6 percent to 37.74 million tons, according to data from the company. Coal India fell behind the month’s targets on both parameters, the filing shows. This follows declines in production and shipments in August, when the company reported its lowest monthly production in three years.

The miner’s plans to ramp up output have been hurt by insufficient demand from power plants, creating a glut of the fuel in the country. That weighs on its revenues and profitability as it limits its ability to raise prices to pass on an expected increase in staff salaries. The company is in talks with labor unions to revise wages for a five-year period starting July 1, 2016.

“It looks like a difficult situation for Coal India and if this situation continues, we could see a contraction in their profit margins,” said Goutam Chakraborty, a Mumbai-based analyst at Emkay Global Financial Services, referring to the wage costs. “We continue to be optimistic that the demand should return, but it all depends on the power sector.”

India’s coal-fired power plants, which bought about 75 percent of Coal India’s produce last fiscal year, used barely half of their capacity in August amid lack of demand from cash-strapped provincial power retailers. Data for September will be released in the coming weeks.

Coal India aims to produce 598.6 million tons and sell an equal amount of coal during the year to March 31. Achieving that target seems an uphill task, Chakraborty said.

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