SVKM’s which includes non-metallic, metallic, fuel and

SVKM’s Narsee Monjee Institute of Management Studies –
Hyderabad

 

 

Post Graduate Diploma in Management 2017-19

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Industry Analysis – Mining Industry

Company Name – Coal India

 

 

 

 

 

 

 

 

Guided By – Dr. Kavita Kulkarni                             Created By – Swapnil
Mohgaonkar

Assistant Professor (Marketing)                                     SAP ID –
80303170071

NMIMS Hyderabad                                                           
Batch – 2017-19

Table of Contents

 

S. No.

Particulars

Page No.

1.

Introduction

3

2.

Industry and Competition:
Market Size and Characteristics

6

3.

Industry and Competition:
Market Trends

10

4.

Industry and Competition:
Market Structure

16

5.

Characteristics of
Competitors

18

6.

Behavioural Traits of each
Major Competitor

20

7.

Industry Analysis –
Metrics

 

8.

References

 

 

 

 

 

 

 

 

Introduction:

India
is an emerging economy and thus there is a rise in infrastructure and
automotive production, this has aided growth in the mining industry. Currently
India produces around 88 minerals which includes non-metallic, metallic, fuel
and atomic minerals. India has vast reserves of 
coal, iron-ore, bauxite. India has 3rd largest coal reserves,
ranks 4th in terms of iron ore production and 7th largest
bauxite reserves. There is a significant scope for new mining capacities in all
these sectors for future discoveries of deposits.

Coal
has a proven reserve of 860 billion tonnes is mined the most in the world. Due
to the soaring demand of power in China and India, increasing worldwide steel
production the demand curve for the coal sector is on the rising side. India
accounts for 308.8 billion tonne of coal resources which accounts for fifth
largest coal reserves in the world, other countries which have major chunk of
coal are USA, China, Australia, Mozambique, South Africa.

India
comes among top 3 fastest growing economies of the world. With increasing
energy needs and growing industrialization there comes the need for increase in
power generation and this is where ‘Coal’ comes into picture. For
infrastructure industries like Steel, Power and Cement, Coal is the critical
input. 

Of
the total reserves in India, nearly 88% accounts for non-coking coal reserves
while balance is coking coal. The Indian coal is characterized by its high ash
content 45% and low sulphur content

Some
important points to note about coal are –

·     
In India’s energy scenario coal is the most dominant
energy source

·     
In India coal meets around 55% of primary commercial
energy needs

·     
Around 70% of India’s power generation is coal based.

·     
After China
and USA, India is the 3rd largest coal producer in the world.

 

 

 

 

 

Out of the total coal reserves in India – Prime
coking coal accounts for 5.3 bt, medium and semi-coking coal are 27 bt and 1.7
bt and the rest non-coking coal 268 bt. Prime and semi-coking coal reserves are
far less than medium grade coking coal and thus it should be ensured that
medium grade is used mainly for processes related to metallurgy. This would
reduce the import of coking coal and as a result would be economic benefit to
the country.

Currently there is a shortage of coal as there is a
mismatch between demand and supply of coal which stands at 185.5 MT. Some of
this shortfall will be met by supplies from captive coal blocks whereas the
rest from imports from countries such as Australia. This mismatch between
demand and supply is expected to rise and widen in 2030 as Asia Pacific is expected
to produce around 74% coal but consume 78% of the total
consumption.

In
India, Coal India Limited (CIL) accounts for more than 80% percent of coal
production in the country and accounts for around 90% of country’s coking coal
reserves. The focus of CIL is mainly on the power grade coal and as a
result  production of coking coal has
stagnated for several years.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Industry
and Competition: Market Size and Characteristics

Mining
is a major economic activity in India which contributes to GDP significantly.
GDP contribution varies from 2.2 to 2.5% only but going by total industrial
sector’s GDP contribution it contributes 10-11%.

India
is the 3rd largest producer of coal in the world. The production of
coal amounts to 554 million tonnes in FY17 and 365.6 million tonnes in FY18 (up
to November 2017). India has the 5th largest estimated reserves of
coal, 308.6 billion tonne in FY 16 and thus contributing around 11% of world’s
total coal production. 99% of the domestic production comes from public sector
producers of coal while only 10% comes from private sector. 

There
is an increase in coal demand in the country due to economic and infrastructure
growth which has resulted into very high import bill amounting to 721 billion
INR in FY 16. Imports of coking coal has increased by around 75%, whereas
imports of non-coking coal have increased by a whopping 250% and as a result net
imports of coal have increased at the rate of 25% over the last 5 years. Moreover, the coal sector is burdened with taxes. Apart
from regular taxes, mining now involves, as a percentage of royalty, payment
for District Mineral Foundation (DMF) and National Mineral Exploration Trust
(NMET) . The clean energy cess has been increased to INR 400 per tone for 2016-
17

The
total coal demand is expected to be around 1.5 BT and as a result the
Government of India has set a target of increasing the coal production by FY
2020 of Coal India Limited (CIL) to about 1 BT, while the remaining production
is to be   met by SCCL, the private sector and central
sector PSUs.  

 

Coal India Limited (CIL)

Coal
India Limited (CIL) a ‘Maharatna’ company under Ministry of Coal, Government of
India with headquarter in Kolkata, West Bengal. It is the single largest coal
producing company in the world and also one of the largest manpower. CIL is a
holding company which operates about 82 mining areas with 7 wholly owned coal
producing subsidiaries.

The Strategic Relevance of
CIL:

·     
Produces 84% of India’s overall coal production.

·     
55% of energy needs is coal dependent in India whereby
CIL alone meets 40% .

·     
Commands around 74% of coal market in India.

·     
Accounts for 76% of total thermal power generation.

·     
Makes the Industry which is the end user, globally
competitive.

 

7 wholly owned subsidiaries
of CIL:

1.     Eastern Coalfields
Limited (ECL), Sanctoria, West Bengal

2.     Bharat Coking
Coal Limited (BCCL), Dhanbad, Jharkhand

3.     Central
Coalfields Limited (CCL), Ranchi, Jharkhand

4.     South Eastern
Coalfields Limited (SECL), Bilaspur, Chhattisgarh

5.     Western
Coalfields Limited (WCL), Nagpur, Maharashtra

6.     Northern
Coalfields Limited (NCL), Singrauli, Madhya Pradesh

7.     Mahanadi
Coalfields Limtied (MCL), Sambalpur, Orissa

 

The
demand for coal is linked to the performance of end-use sectors which mainly
comprises of cement, electricity and steel. The demand from un-organised sector
is also relatively very large. As a result there is a shortage of coal. Some of
this shortfall is met by supplies from captive coal blocks and rest through
imports.

 

The above picture depicts the coal availability in
India wherein SCN-I represents business as usual and SCN-II represents the
optimistic scenario. Thereby, for the enhancement of Coal Production following
road map has been undertaken by CIL :

a)     Large scale contract mining

b)     Improvement in mining infrastructure

c)      Modernization of mines

 

 

 

 

 

 

If we look at the global market India, China account
for nearly 80% of incremental growth in the demand for coal. By 2035, world’s
largest consumer of coal would be China, followed by India and the major driver
for the demand of coal would be coal based thermal power projects.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Industry
and Competition: Market Trends

Trends in Domestic Coal Supply –

Following
the nationalisation of coal sector in 1970s the average growth rate in
production of non-coking coal and lignite was 4%. This output growth rate
picked up in 1980s to an average of around 8%. In 2000s the net coal production
increased from 3% per year to 8% per year in 2010-11. In 2014-15 despite a
strike, the total coal output growth was 8.3%. If this output, were to increase
at steady 7% per year from now, production would catch up with the trends
projected for 2020-21. To meet the target of 1.5 BT per year by 2020, an annual
growth rate of over 22% would be required.

 

Coking coal

Coking coal or Metallurgical
coal is used exclusively for steel production. In coke ovens the coal is baked
which forces out impurities to produce coke which is pure carbon. 

More than half of the
total coking coal reserves has high ash content (30-35%) possess difficult
washability characteristics. Presently around 95% of coking coal is of this
grade and after de-shaling most of it is sold to power plants. This has
resulted into import of coking coal which could have been avoided.

In the net import of low
ash coking coal, India has registered a CAGR of 11.1% . As per the data, over $
6 billion was spent on import of low ash coking coal, but only 27% of coking
coal which was domestically mined was used for the metallurgical purpose in
2013-14 and it further came down to 23% in 2014-15 whereas the rest was used
for non-metallurgical purposes.

 

 

The
production of washed coking coal has declined in the last 10 years. The
production of clean coking coal in washeries is depicted in figure below
whereby we see that capacities of CIL subsidiaries are heavily under-utilised
because they were designed to handle coal with ash content upto 20% and thus
became obsolete as most of the coal produced from there has now ash content
greater than 20%.

 

 

 

 

 

Non-Coking Coal

The increase in the import
of non-coking coal began with the growth of private sector in power generation.
Low import duty on non-coking coal and the directive given by Government of
India that ash content in the coal which has to be transported over 750 Km
needs to be less than 34% facilitated more import of non-coking coal from
Indonesia.

The blending of low ash
coal which is imported with domestic coal not only allowed to meet the
shortfalls in availability of domestic coal but also aided in bypassing the
restriction imposed on transportation of high ash coal.

Drivers of Coal Demand :

Majorly the coal is consumed
for electricity generation (64%) in India, followed by the sectors of steel
(8%) and then cement (5%).

  

 

 

 

 

 

 

 

 

 

 

Power Sector:

About 62% of installed
capacity is coal based and as per International Energy Agency (IEA) reports,
coal based generation is expected to reach 230 GW by FY 2020 from the coal
based installed capacity of 185 MW. If the country aspires to grow at the rate
of 8% the generation of electricity needs to be increased at much higher rate.

Steel Sector:

Coal consumed by this
industry in India was 66 MT, between FY 06 and FY 15 the consumption has
increased nearly threefold. There is also a threefold increase in both capacity
and production levels which has resulted in coking coal requirement of around 9
MT .

Cement Sector:

Rapid urbanisation and investment
in infrastructure projects like smart cities this all will be the main drivers
for increase in cement demand in India. Considering this, cement production in
FY 2020 will be around 400 MT which would result in coal requirement of around
80 MT.   

Other Sectors:

Other industries such as
paper, textile, railways, defence also require coal. Although, the consumption
of coal is very small, the share has increased from mere 14% in FY 06 to 23% in
FY 15. Thus, coal requirement will grow at a CAGR of 7.5% implying coal
requirement for other sectors would be around 270 MT.

 

 

 

Coal Import

India imported around Rs. 72,000
crore of coal in FY 16 as compared to

Rs. 95,500 crore in FY 15.
This drop was mainly due to drop in the global coal prices. Moreover, there was
a reduction of around 25% in average coal prices paid in those two financial
years. This is mainly due to reduction in the volume of coal that is imported.

As per the present
scenario, the total coking coal demand is around 100 MT in India. India imports
around 40-45% of coal requirements. As the coking coal reserve is not that
high, India will have to remain dependent on imports of coking coal.  If we look at the import of non-coking coal,
there are number of  imported coal based
power plants located mostly in coastal regions which have been designed to coal
imported from other countries. At present for these power plants the coal
import stands at around 40-50 MT.

 

Increasing Coal Production:

In any domain whether it
is industrial or for commercial purpose every business wants to adopt
‘sustainable practice’. This helps them to gauge their potential and compare
with the practices followed in other country. With the developments in mining
in terms of technological improvement, improvements inproduction and
productivity has been observed.

 

Major focus is now being
given on Sustainable Development Framework (SDF) where different ways are adopted
to target a maximised extraction percentage:

·      Proper and Scientifically proven
mining technology

·      Correct mining method like
OCM/Longwall are being adopted

·      Combining smaller mining areas to
develop them into single mine of large capacities.

Impact of GST on Mining
Industry:

Under the tax structure
prior to implementation of GST, mining sector incurs royalty and service tax as
the procurement costs. Service tax for the services for the services such as
exploration, handling, transportation etc. Royalty on mining is collected by
state government on lease of mines granted to them.The mining industry incurs
excise duty, value added tax and central sales tax as output tax liability.

The constitutional
amendment bill has removed the Entry tax, Entertainment tax and VAT from the
union list. Under GST there would be output tax at the time of output and at
the same time input tax incurred would be allowed as credit.  

 

 

 

 

 

 

 

Industry
and Competition: Market Structure

Currently, the government,
Coal India Limited (CIL) enjoys a monopoly in producing coal as more than 90%
of coal comes from the government controlled mines. In 1993, Government
introduced the policy of captive mining and thus, coal sector was opened up to
private investment. Of the 200 allocated blocks only around 30 have commenced
production. The reason for the dismal show being contentious issues, geological
data availability and environmental clearances. For efficient processing currently
coal block auctioning is proposed.

The nationalisation of
coal industry in the early 1970s has influenced the current structure, conduct
and performance of the sector –

Firstly, it has allowed
CIL to monopolise coal production in India with around 80% of total share. The
dependence on CIL that generates around 70% of total power consumption for fuel
has meant that the country is dependent on the performance of single company.

Secondly, it has aided in
technological shift towards opencast mining. The accelerated coal production
from opencast mining has resulted into decrease of share of under ground mining
from 74% in 1975 to 10% as of today.

Thirdly, the greater coal
production from opencast mining has led to increased low-cost labour in coal
production and the reliance on low cost labour has to an extent is barrier to
investment in new scientific management and new technologies.

 

 

 

A total of 20 mines with
extractable reserves of 600 MT were offered to unregulated sector (iron and
steel, cement, aluminium and other industries)

 

 

 

 

 

 

As CIL enjoys a monopoly in the
production of coal, the subsidiary wise production of coal of CIL is given
below :

 

 

 

 

 

 

 

 

 

 

 

Characteristics of Competitors

Even today Coal India and
Singareni (SCCL) enjoy 90% market share. To avoid interference  captive mining are located in remote areas at
some distance from Coal India resulting into high infrastructural cost.
Further, government has opened up many small mines, so economies of scale in
mining are gone.

There are various demand
and supply side problems which the coal sector is facing today and hence has allotted
some of the coal blocks to private companies who have started production.
Although there are private firms operating in coal sector, they account for
just 10% of total coal production in India and thus presents no major threat to
Coal India and its market share.

Supply Side Problems:

·      Quality of coal is poor which has
high ash moisture and ash content.

·      Coking coal is not much available in scarce
and thus India has to depend on imports.

·      Coal mining also suffers from
multiple obstacles like Naxalites, environmental clearance and tribal
resistance.

·      Poor technology

Demand Side Problems:

·      Increase in cess on carbon has
increased the cost.

·      Factors such as low price of steel is
factor which has slowed coal demand.

·      Bad shape of power utilities and thus
are not to pay pending dues to CIL.

 

 

 

People performance of CIL

It encompasses not
only the concerns of stakeholders involved in supply chain but also those
directly and indirectly affected by operations. Bipartite meetings  are held periodically at corporate level
pertaining to employee’s welfare. Joint consultative meeting looks at strategic
issues related to quality of life of employees.

There are about 99000
contract workers employed in mines. Minimum wages for contract workers has been
fixed which is higher than minimum wages under payment of minimum wages act.
Moreover, the company also provides medical treatment free of cost at company’s
facility.

Some Minor Competitors:

Besides CIL, SCCL there
are very few small scale private players also involved in the coal production.
These include TISCO, Adani. For its requirement government has allotted some of
the coal blocks to NTPC as well for their coal requirements.

Tata Steel produces 5 million tonnes
coal while its requirement is around 3.5 million tonnes. The excess coal which
it produces is sold to SAIL at the rates fixed by government. NTPC has also
made a debut in coal production for its Dulanga coal mine located in Odisha and
also Pakri-Barwadih mine. All in all NTPC has been allocates 8 coal blocks and
NTPC expects to produce around 107 million tonnes of coal per annum.

Adani Mining was awarded 4 coal blocks
in Raigarh district of Chhattisgarh carrying a coal reserve of over 2600
million tonne.

 

 

Behavioral Traits of each Major Competitors

Coal Price

The price of coal is
determined by level of supply and demand. The two government owned companies
Coal India Ltd and Singarieni Collieries Company Ltd. who are working in
different geographies see their role as fulfilling the government targets.

 

 

 

 

 

 

 

PEST Analysis-

Political Factors:

Difficulty in obtaining
clearances from state government.

Contribution of iron ore
to inflation

Economic Factors:

Exchange rate fluctuation
impacts the performance of mining industry. As per mining legislation there is
no restriction on the foreign equity holdings.

 

Social Factors:

The problem arising from
mining induced displacement and resettlement, MIDR.

Unrest among local
residents due to landlessness, joblessness.

Technological Factors:

New innovations have
improved in cost, emission controls.

Analysis of Competitor

Coal India is not a
monopoly technically since many private players have captive fields of their
own now. Coal India controls the bulk of the business simply because nobody
else is capable of catering to huge Indian market. For years to come, Coal
India is not expected to have any serious competition.

SWOT Analysis-

Strengths:

·      CIL is the world’s largest coal
producer in the world.

·      Strong employee base with over
350,000 people in the organization

·      Strong backing by government of
India.

Weakness:

·      Strong control has reduced CIL’s
flexibility to respond to changes

·      Inefficient production of coal is
causing supply problems

Opportunities:

·      To become energy sufficient country,
CIL has a major role to play

·      Increasing efficiency in management
can boost the performance of company.

Threats:

·      Project delays due to environmental issues
pose threat to company’s future supplies.

·      Foreign investment in this industry.

 

 

 

 

 

 

 

 

 

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