Coal block auctions in India see aggressive bidding

Indian metal and cement companies have bid aggressively for coal blocks in the country's first auctions to sell mines as they look to cut imports and their dependence on inefficient government monopoly Coal India Ltd.

The auction follows a court cancellation of all previous licences and the initial bidding suggests companies are keen to secure supplies as the economy improves.

The companies are allowed to bid for enough coal to fuel a 50 percent expansion of their current metal or cement capacity.

The stiff competition may strain the balance sheets of the winners, including aluminium makers Hindalco Industries and BALCO, Jaiprakash Associates, Sunflag Iron and Steel, OCL Iron & Steel, Reliance Cement and Essar Power.

Most of the winning bids so far have been higher than analysts' expectations based on the benchmark price of state-run Coal India.

OCL, for example, would pay 2,302 rupees ($37) per tonne, 50 percent more than Coal India's average price for the grade available in the mine OCL has won.

The companies have declined to comment on the auctions until the whole process is complete, which should be March 5.

Though world coal prices have fallen about 30 percent over the past year, a tonne of imported steelmaking coal costs about $120 in Indian ports while the thermal variety comes for $70.

"We should not read too much into the current prices companies are bidding as we are looking at the next 30 years," said Dipesh Dipu, a partner with Jenissi Management Consultants.

"With their own mines, companies will have control over costs, while for imports you can forecast just for a year.