Coal India’s Profit May Dip as Iran War Lifts Mining Costs

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(Bloomberg) — State-run miner Coal India Ltd.’s first-quarter profit likely declined marginally from a year earlier, led by costlier raw materials, such as explosives and diesel following the Middle East war.  

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Average of estimates point to a profit of 86.4 billion rupees ($895 million), about 1% lower than a year earlier, according to analyst views compiled by Bloomberg. Higher expenses may wipe out gains from stronger demand during the quarter. The company said in April that it was absorbing higher costs to avoid a “cascading effect” on the economy. 

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The war resulted in an effective closure of the Strait of Hormuz, a key supply route for energy and commodities to India, causing shortages of fuels such as diesel, natural gas, and cooking gas and leading to a surge in prices. At the start of April, the cost of explosives used for blasting layers of soil sitting over mineral deposits had risen 26% from pre-war levels, while price of diesel, used to fuel mining machinery, had risen by about half since the middle of March, according to Coal India.     

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Operationally, the quarter was marked by sales growth as demand for electricity to run cooling appliances was stronger during summer. While shipments rose nearly 4% from a year earlier, the miner also sold more coal in auctions that fetched a 44% premium over base prices. Peak electricity demand posted new records during the period, pushing utilization at the country’s coal power plants upward and boosting generation by 8% from a year earlier, power ministry data show.

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Still, the fuel’s contribution in India’s generation during the quarter remained flat at around 70%, while renewables gained more ground with a record 19% share. That kept Coal India’s unsold inventory at elevated levels, forcing the miner to cut output by about 8% during the quarter.

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Rapid deployment of renewables as well as rising competition from other miners has challenged Coal India’s dominant position in India’s coal market. Even though coal is expected to remain an important part of the country’s energy mix for at least a decade, challenges on the horizon have pushed Coal India to diversify into renewables and mining critical minerals.

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