India: S. African portside coal prices up INR 600/t w-o-w amid domestic shortage

Continuing the trend of the past two weeks, Indian portside prices of South African RB2 (5,500 NAR) grade coal rose further this week as the ongoing domestic supply shortage compelled sponge iron manufacturer to procure high-prices imported coal.

RB2 portside prices at Gangavaram and Vizag rose by INR 600/t w-o-w as stock availability remained limited, while prices at Krishnapatnam Port rose by INR 500/t due to lower vessels scheduled to arrive at southern ports.

The domestic coal supply condition continued to remain critical as domestic miner Coal India Ltd (CIL) stepped up its supplies to the power sector.

The issue of critical coal stock with power plants that had cropped up in mid-August made Coal India and its subsidiaries prioritise coal supplies to power utilities. As a result, dispatches to the non-power sector declined by 13% m-o-m in Aug'21 to 10.12 mn t, as per coal ministry's data.

This trend is continuing in the ongoing month, forcing the sponge iron units to bear the brunt of escalated imported coal prices. The sponge units that had largely avoided booking portside RB2 coal even at INR 8,500-9,500/t a month ago, are now left with no option but to buy the same at above INR 10,000/t now.

RB2 coal portside average trade prices

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

Sluggish steel demand hinders sponge iron requirement

Amid tepid demand, sponge manufacturers are heard to be buying imported coal in smaller quantities as majority of units operated at a 60-70% capacity, informed market participants.

"Steel demand in India is currently flat while export demand for the same from its key export market of South East Asia is also sluggish due to lockdown restrictions there. This has, in turn, affected the demand of semi-finish steel. Adding to it, the high freight costs are causing a dent in export demand of semi-finish steel, and ultimately affecting sponge iron demand," informed a sponge iron producer based in Raipur.

He further added that domestic scrap prices have also fallen by INR 1,000/t in the last one month, making secondary steel units use more of scrap over sponge iron in their raw material mix, denting the latter's demand.

On the supply side, direct importers of thermal coal are heard to either hold RB2 offers or sell at higher prices as the landed cost of RB2 coal, as per the current index, equated to INR 12,000/t at Gangavaram Port.

Trade concluded

In various confirmed deals collected by CoalMint between 13-16 Sept'21, a total quantity of 15,000 tonnes of RB2 coal has been traded at an average price of INR 10,700/t, ex-Gangavaram. Prices exclude cess and GST.

South African coal prices trade higher

Amid robust thermal coal demand across regions and constrained coal supply from Indonesia, South African coal prices has been trading above the $150/t-mark since the beginning of this month.

As on 16 Sept'21, RB2 prices were at $153/t, FOB basis, while discounts for the same and RB3 were assessed at $18/t and $27/t respectively for Oct-loading cargo. Capesize vessel freight from RBCT to Gangavaram is at $19.5/t.

Despite the increased portside trading activity, vessel arrival from South Africa continues to remain limited as only 0.40 million tonnes (mn t) of South African coal is scheduled to arrive at Indian ports between 17- 27 Sept'21, CoalMint data showed.

Short-term outlook

CoalMint believes that any correction in portside prices of South African thermal coal seems unlikely in the near term amid persistent domestic coal shortage, lower stock at ports and increasing imported coal prices.