Monsoon Rains Dampen Coal India’s Profit Outlook Amid Surging Stockpiles

Early monsoon rains across India have offered a reprieve from the summer’s searing heat but have simultaneously upended state-owned mining behemoth Coal India’s strategy to reduce its substantial coal inventories. The unexpected damp weather has curbed electricity demand, leaving the company with record-high stockpiles and diminishing its ability to command premium prices.

The confluence of sustained high coal inventories, increasing competition from renewable energy sources, and growing output from other miners is challenging Coal India’s dominance and eroding the massive profit margins it enjoyed just a few years ago.

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“Coal India’s growth window is narrowing,” said Rupesh Sankhe, senior vice president for research at Elara Capital India. He pointed to the accelerating adoption of renewable energy, emerging energy storage projects, and a renewed governmental push for nuclear power as factors that will increasingly pressure demand for coal.

The Kolkata-based miner has been grappling with an unsold inventory exceeding 100 million tons since the fiscal year began in April. Meanwhile, coal stockpiles at power stations—Coal India’s primary customers—have swelled by nearly a third from a year earlier, reaching over 58 million tons, the highest level in 17 years of record-keeping.

This supply glut is directly impacting the premiums Coal India can fetch in auctions, a critical component of its earnings. In 2022, when a post-pandemic economic rebound fueled coal shortages, customers were willing to pay premiums of more than 300% above baseline prices. That margin has since plummeted to 43% and could potentially slide further to 30%, according to marketing director Mukesh Choudhary, who shared the outlook on a recent investor call.

The softened demand and abundant supply are casting a shadow over the company’s prospects. India’s coal-fired electricity generation saw a 6% decline year-on-year during the first two months of the current fiscal year. Peak electricity consumption for the year remains more than 10% below February projections and over 5% short of last year’s maximum. Unless heat waves this month trigger a drastic surge in power usage, this fiscal year could mark the first annual decline in coal demand in at least two decades.

Further complicating matters for Coal India is the rise of other domestic players. A growing number of companies are not only mining coal for their own plants but also increasingly pushing surplus production into the open market. NTPC, India’s largest power producer and a significant coal consumer, aims to nearly double its own coal production to 50 million tons this fiscal year and is actively seeking to source more fuel from non-state entities.

These independent producers are capturing a larger share of India’s coal output, having mined 198 million tons in the year through March, roughly a fifth of the nation’s total. This trend is expected to weigh on Coal India’s sales. While Mr. Sankhe anticipates the miner’s volumes could grow by as much as 5% annually for the next three to four years, he projects a decline thereafter. He contends that the increased competition will offset any gains from higher volumes, signaling that Coal India’s profit has likely peaked.

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