Infrastructure: CIL’s ‘mining on the shelf’ at the centre of core sector spurt

Infrastructure output grew an annual 5.2 per cent in June, its fastest pace in two months, driven by a surge in output of cement, coal and electricity, government data showed on Monday.

Coal push

CIL’s new approach of ‘mining on the shelf’ focuses on overburden removal to expose coal seams and then ramping up production when demand picks up. Overburden removal is term used to define the removal the topsoil that covers a seam of coal. With enough topsoil gone, the miner is in a position to step up production on short notice, as was done in June, when power demand soared and demand for coal perked up.

The coal performance reflected in the core sector data tallies broadly with the production data recorded by CIL, which, along with its subsidiaries, achieved 99 per cent of targeted production at 42.72 million tonnes in June 2016 (on a provisional basis). This was helped to a large extent by the pick-up in coal offtake, a weak point so far, with 95 per cent of target for the month being achieved. The total offtake stood at 44.96 million tonnes in June 2016.

CIL’s strategy of having ‘coal ready for mining on shelf’ follows the setback faced by the world’s largest coal miner in previous months, that left it saddled with a 55 million tonne pithead stock at the end of FY16. The high pithead stock had offset CIL’s margin, since the stock had to be apportioned as a cost to the company while there was no price realisation from it during the financial year. “High coal stock inventory at coal-fired power utilities as well as at pitheads of Coal India restrained the company to go for higher production during the months of April and May,” a company official said. The tepid demand for domestic coal was due to the power plants running at low plant load factor (PLF) as thermal stations were holding a high 30.51 MT coal stock till end-June 2016.

The core sector numbers for July, slated to be released later this month, could, however, reflect some dampening in the upswing. CIL produced 36.74 million tonnes of coal in July, as against an internal target of 40.29 million tonnes. For the entire fiscal, the government has set a production target of 598 million tonnes for CIL.

Cement pick-up

With regard to cement, the overall demand is likely to grow by 6 per cent in the current fiscal and further rise to 7 per cent in 2017-18, riding on an improvement in infrastructure segment.

According to rating agency Icra, cement demand was relatively muted at 5 per cent in FY16. “Cement demand growth will pick up to 6 per cent in 2016-17 and further to 7 per cent in 2017-18… during the current fiscal, it is likely to be driven by the pick-up in the infrastructure segment — primarily road projects and housing segment,” Icra Ratings senior vice president Sabyasachi Majumdar said.

“This apart, there is a likelihood of recovery in rural demand from the second half of the current fiscal given the expectations of a better monsoon,” Majumdar added.

Icra added that cement demand would also be supported by the development of a new capital for Andhra Pradesh and the focus on irrigation and water grid schemes by Telangana.

In April, Harish Badami, chief executive officer and managing director of ACC had informed shareholders that demand growth is projected to touch 6 per cent in calendar year 2016 compared to 2 per cent in 2015, riding largely on a pickup in infrastructure, connectivity, housing and sanitation.