Coal shortage powers rally in sector stocks as Coal India, NTPC gain up to 6%

The power shortage across the country has increased from 1.1 percent in October 2021 to 1.4 percent in April 2022. Meanwhile, the demand for coal has increased nine percent on a year-on-year basis. Reports suggest that coal stocks in thermal power stations are low.

Coal India, Adani Power and Gujarat Mineral Development Corporation shares rose in the range of 1-8.8 percent on BSE at the time of writing.

Market expert Kush Bohra of kushbohra.com pointed out that indicators are looking neutral to positive for coal shares, which have seen a stupendous run in the last few months.

“The Coal India stock has taken support multiple times at its 20-day moving average and bounced back from there very smartly. Some indicators are suggesting that it could perhaps been entering into slightly overbought zone but nothing alarming. Rs 200 will act as a mild resistance but beyond that Rs 225-230 is what we can see on the charts in the coming days on Coal India,” he told CNBC-TV18.

Rakesh Singh, CEO, Fisdom Stock Broking is of the view that the market is pricing in the prospects of higher profitability for coal companies despite the looming crisis.

He has highlighted a few factors behind the price movement

peak demand

limited domestic production ability

limited access to alternative supply through imports

logistical challenges

elevated international coal prices

low inventory with power producers

healthy earnings expansion

India is likely to face more power cuts this year as utilities' coal inventories are at the lowest pre-summer levels in at least nine years and electricity demand is expected to rise at the fastest pace in at least 38 years, Reuters quoted officials and analysts as saying in a report earlier this month.

Coal inventories at power plants had an average stock of nine days at the beginning of this financial year starting April 1, the lowest since at least 2014, according to Reuters. Federal guidelines recommend power plants have at least 24 days of stock on average.

On April 13, the government allowed some state utilities to sell up to 25 percent of the coal allocated to them to other producers and urged states to import coal for blending with local grades to avert power cuts, a statement said.

Tolling, or selling up to 25 percent of state utilities' allocated coal, would allow some power producers access to fuel from the coal mines, helping to boost power generation at a lower cost.