South African RB2 price at Indian ports rise on improved demand

The stock and sale offer for South African origin thermal coal, especially at the eastern ports in India have moved up this week.

• The current offers for RB2 (5500 kcal/kg) at Gangavaram and Krishnapatnam port are at around INR 4,800/t and that of RB3 (4800 kcal/kg) is between INR 4,300-4,400/t, up by INR 400/t w-o-w.
  
  
• RB2 offers at Vizag is being quoted at INR 4,600/t and in Haldia at INR 5,400/t. This is loaded into truck or wagon price and excludes GST, cess.
  
  
• South African thermal coal's API index has also moved up this week and is currently assessed at $58.6/t, FoB basis for September laycan. RB2 grade coal offers to India are reported to be at $ 42-43/t and RB3 is at $38-39/t, FoB RBCT port basis.
  
  
• The discounts for RB2 grade are at $8-9/t and for RB3 are at $13-14/t. The freight for panamax vessel to east coast is around $13/t and to the west coast it is around $12.8/t.
  
  

Factors driving the domestic coal offers

While the stock and sale offer in India were going steady with minor fluctuations over the past few weeks, market participants have attributed this week's rise to aggressively buying and increase in its end-product, sponge iron prices.

The sponge iron prices in India have moved up significantly (by 42%) in past two months partly due to improved demand partly due to increase in its raw material - pellet prices.

"When sponge prices increased initially, stock and sale coal offers remained unchanged amid high stock and also because market participants thought that it to be a temporary phenomenon. However, now it seems that sponge iron demand has improved fundamentally and pellet prices are also on a roll, prompting traders to raise their stock and sale offers", quoted a trader based in Gangavaram.

"API index for the upcoming months of 2020 looks positive and people seem to buy coal in anticipation that imported coal price would increase in India with the rainy season coming to an end & steel demand will likely improve resulting in increased requirement for thermal coal", quoted another trader based in Krishnapatnam.

What does the future hold?

As per CoalMint's analysis, this is a temporary phase of price rise in the domestic stock and sale offers as there is sufficient stock of thermal coal (16.4 mn t as on 17 Aug'20) available at Indian ports, which was around 11.3 mn t around same time last year.

Apart from this, over the past few days there has been limited demand for sponge iron (key buyers for S.A. Thermal coal in India), as sponge buyers in the region are waiting for some price correction before placing orders.

This could pull down thermal coal prices back to the earlier levels seen in first week of August, assessed CoalMint.