Decoding the South African thermal coal price trend since COVID-19 outbreak
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The noteworthy downtrend in South African thermal coal prices that began this year since March-end, following the rapid spread of the Covid-19 viral pandemic, and continued till May finally saw an uptick in the first week of June when the country's top export destinations like India and Pakistan considerably eased their lockdown restrictions.
Further in the second week of June, the API Index price once again observed a fall of $4/t, triggered by a plunge in crude oil prices. However, post that in last two weeks of June the prices largely stabilised with minor fluctuations amid limited trade especially from India.
An interesting trend that was observed towards the end of June month was that global sea freight rates reached a five year high as demand in Europe recovered from its pandemic-low but the global capacity remained restrained. This once again resulted in limited buying interest from the thermal coal users in India who are already experiencing difficulties of Covid-19 led restricted demand, coupled with the government's ongoing import substitution drive.
Amid double whammy of increased freight rate, while global trade is faced with disruption caused by the coronavirus pandemic, the API index price further moved down by $2/t today and is assessed at $54/t.
Export offers for the Indian market
The South African thermal coal export offers for RB2 and RB3 grade thermal coal are currently being heard between $51-52/t and $44-45/t respectively on CNF India basis (prices are average at both east and west coast basis) for July end - August first week delivery.
The discounts for RB2 grade coal are being reported to be between $9.5 - 10.5/t and for RB3 grade it is $13-14/t. The freight for capsize vessels is trending between $11.5-11.9/t.
In the domestic market, the thermal coal stock at the Indian ports at the end of week 26 (22-28 Jun)stood at 15.2 mn t which is still higher by 40-45% against the average stock at port during pre-COVID-19 months; CoalMin's weekly stock report reveals.
Stock and sale at Indian ports
From the demand perspective, the thermal coal demand from the sponge iron sector is not showing any major signs of improvement.
"The domestic demand for thermal coal from sponge iron sector at present is very limited as the industry is operating at 45-50%. We are forced to offer thermal coal at rates lower by INR 2,000-2,500/t than what we used to offer in Jan-Feb'20", quoted a trader based in India.
CoalMint has heard a trade deal of 5,000 tonne of RB2 grade thermal coal being sold to sponge sector at INR 4,300/t in Central India whereas offers for RB2 grade coal across India is being heard at INR 4,300 - 4,500/t. The offers for RB3 grade coal are being heard at INR 3,800-4,000/t, ex-Gangavaram port.
Outlook
The South African thermal coal prices are unlikely to observe any significant upward movement in the near term amid sufficient stocks at Indian ports that have moved down by just 2.81% w-o-w-basis in the week ending on 28 June.
In case of domestic market, there are chances that trade offers to sponge iron sector may see further correction as buyers are currently at an advantage owing to sufficient availability of coal stock at ports and under-utilization of plant capacities.
