India: RB2 portside prices climb higher even as buyers wait and watch

Portside prices of South African RB2 (5,500 NAR) grade coal at Gangavaram Port remained elevated this week as imported prices further extended their rally, and as large scale traders continued to hold portside offers higher at INR 19,000/t.

Demand from the sponge iron manufacturers, however, eased slightly this week as they opted a wait-and- watch mode with the rising losses on production costs. Most of the sponge iron players were heard to have accumulated sufficient coal stock and awaited a correction in portside prices before procuring more, informed market participants.

Margins of sponge iron have further squeezed and manufacturers have been incurring losses as current PDRI ex-Raipur price is being assessed at INR 35,300/t whereas the sponge iron production cost is coming to around INR 38,600/t.

The losses have dented the bulk buying capacity of sponge players as majority of the plants are operating at reduced capacity.

"Sponge iron manufacturers have partly passed on this raw material cost increase to customers in the last two months. But given the volatile market conditions, margins are already under pressure and would remain so unless any further price hike is rolled out," a Raipur-based trader said.

Further, amid the improving weather conditions across various states in the country and the government ramping up coal production, sponge iron manufacturers also pinned hopes on improving domestic supplies in the upcoming weeks.

Coal inventory levels at power plants, however, remained critical as stockpiles moved down to 7.34 million tonnes (mn t) as on 12 Oct'21, which is sufficient for an average of only four days usage.

In lieu of the current low stock position at the power plants, CIL has asked its subsidiaries to refrain from conducting coal auctions, except the special forward auction, which is earmarked only for the power producers. This is likely to leave the non-power sector waiting for a long time before the situation stabilizes.

RB2 coal portside average trade prices

*Prices in INR/t, ex-cess and GST

Deals concluded

In various confirmed deals collected by CoalMint between 11-14 Oct'21, a total quantity of 11,000 t of RB2 coal has been traded at an average price of INR 18,500/t, ex-Gangavaram this week.

South African prices rise further

Amid China's robust coal demand ahead of winter, South African thermal coal prices rose further to $231/t, as on 14 Oct'21, up by $15/t w-o-w.

The rise came as Chinese traders continued to make coal bookings even during the Golden Week holidays last week amid the worsening coal shortage in the country, wherein over 20 provinces have announced power cuts.

The discounts for RB2 and RB3 grades rose by $22/t and $36-37/t respectively for Nov'21 loading cargo. Capesize vessel freight from RBCT to Gangavaram remained higher at $29/t.

Short-term outlook

CoalMint believes portside prices of South African thermal coal are likely to remain elevated till the domestic coal supply situation improves in India.

Imported South African coal prices are also likely to trade higher as demand from Chinese utilities would remain strong as they struggle to get domestic coal supplies in the run-up to the winter months.