India: Sluggish domestic demand weighs on RB2 coal portside prices this week

South African RB2 (5500 NAR) grade coal portside prices continued their descent this week as rising COVID-led restrictions in the country disrupted demand from sponge iron sector across various regions.

Due to limited bids, portside prices at key ports (except at Gangavaram) corrected by INR 100-200/t w-o-w basis, with buyers pinning hopes of further correction in prices to place bookings.

Portside prices this week

*Prices in Inr/t and ex-Cess and GST

At Vizag port, majority of RB2 stock have been sold out and last trade of 6,000 tonne was heard to be sold at INR 6,840/t.

Oxygen shortage and plants closure result in reduced demand

Several sponge manufacturers in states like West Bengal, Punjab, Maharashtra, Chhattisgarh were forced to work under minimum load or suspend their operations amid increasing COVID cases and strict lockdown curbs, informed market participants.

Another issue that has cropped up in past few days is of reduced demand of sponge iron from end-user segment due to oxygen shortage.

Due to spiraling COVID cases, oxygen meant for industrial use is being diverted for medical purpose, resulting in induction-based steel plants and rolling mills plants closure in various states. About 40 rolling mills and steel plants in Raipur region, Chhattisgarh are reported to have shut their operations while many in Punjab and Maharashtra are also heard to follow the suit. Oxygen along with LPG is used in induction arc furnaces and rolling mills to cut and shape the iron and steel items to be used by different industry verticals.

These factors have weighed heavily on South African thermal coal demand from its key buying segment, sponge iron sector.

Transnet's rail disruption pushes API4 index up

The derailing of wagons and subsequent closure of rail line carrying coal to RBCT port on Wednesday has made the API4 index to shoot up once again in past two days.
While the no.of days required to clear the disruption is still awaited, the impact of rising index on the Indian portside prices seems limited due to ongoing uncertainty in the sponge and billet market.

In terms of import bookings, Indian buyers are already making reduced purchases of South African coal due to escalated freights and sluggish domestic demand.

The discounts for RB2 and RB3 coal are currently heard at $17/t and at $27/t respectively. The freight between RBCT to Gangavaram port is heard at $18/t, up by $3/t w-o-w basis.

Short-term outlook

Despite the ongoing negative sentiments in domestic sponge iron market due to rising COVID-led restrictions and steel plants closure, CoalMint believes that the rise in index, reduced thermal coal stock at port, and the ongoing coal restocking season, is likely to limit the freefall in RB2 (5500 NAR) portside prices in the coming days ahead.