India: S.African portside prices touch INR 10,000/t-mark amid domestic coal shortage

South African RB2 (5500 NAR) grade coal are being traded at INR 10,200/t at Gangavaram, up INR 900/t m-o-m basis and by INR 4,425/t since Jan'21.

This rise can be attributed to domestic coal shortage and elevated imported coal prices.

The government is prioritising coal supply to the power sector from CIL and its subsidiaries since past two weeks amid limited stock left with the power plants. Due to this, sponge iron units were heard to be struggling to get the required number of rakes for coal delivery. Additionally, coal supply from mines also remains disrupted due to heavy rains making users opt for imported coal.

RB2 coal portside average trade prices

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

At Gangavaram and Vizag ports, RB2 coal is being offered even at INR 11,000/t, while offers at Paradip and Haldia are heard at INR 11,200/t.

As the landed cost of RB2 coal as per the current index equates to INR 13,000/t at Gangavaram Port, importers are still continuing portside trade at a loss of INR 2000-3,000/t, according to CoalMint analysis.

Sponge iron units avoid bulk purchases

Despite concerns of a further rise in thermal coal prices in the coming weeks, sponge manufacturers preferred to buy imported coal in smaller quantities, and that too just to cater to the limited demand of sponge iron from end-user segment. The falling scrap prices since past few weeks have also weighed on sponge iron demand in the country.

In addition, only the integrated steel plants have cost advantage amid falling iron ore and rising coal prices whereas independent sponge iron units are unable to bear higher thermal coal costs and are operating at lower capacities, informed market participants.

Also, the disparity between the imported 5500 NAR grade coal and equivalent grade domestic coal at present stands at INR 1,000/t against INR 2,500-3,000/t a month back, further giving advantage to imported coal.

South African coal prices remain elevated

Amid elevated thermal coal demand across regions and constrained coal supply from Indonesia, South African coal prices have gone up to $152/t this week.

Discounts for RB2 and RB3 this week are assessed at $18/t and $27/t respectively for Sept-loading cargo, while capesize vessel freight from RBCT to Gangavaram is at $19.5/t.

Owing to the sharp rise in South African coal prices, vessel arrival continues to remain limited as only 0.30 million tonnes (mn t) of South African coal is scheduled to arrive at Indian ports by 27 Sept'21, CoalMint data showed.

Short-term outlook

CoalMint believes that South African thermal coal portside prices are likely to go up further amid persistent domestic coal shortage, lower stock at ports and increasing imported coal prices.