India: South African RB2 portside demand sluggish as sponge iron units resort to domestic purchases

After a two-week gap, South African thermal coal demand softened this week as sponge iron manufacturers resorted to procuring domestic coal amidst escalated imported offers.

Subsequently, a few traders have even lowered their portside trade rates for RB2 (5,500 NAR) by INR 200-250/tonne (t) and sold at INR 9,100/t at Gangavaram. Prices exclude cess and GST.

RB2 coal portside average trade prices

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

At Haldia, RB2 grade offers were heard at INR 11,000/t whereas at nearby Dhamra Port, the same is being traded at INR 10,200/t.

South African coal prices in the southern ports continued to remain higher as thermal coal stock are mainly concentrated in Krishnapatnam and Ennore ports, while not a major quantity of RB2 stock is left for trade at Mangalore Port.

Demand for domestic coal picks up

Sponge iron production in India has picked up since the past two weeks amid a sharp correction of about INR 2,000/t in iron ore and pellet prices. The current price for P-DRI (Fe 64%) is assessed at INR 12,100-12,200/t ex-Raipur.

This has encouraged sponge iron units to improve their capacity utilisation rates. However, when it comes to procurement of thermal coal, sponge iron manufacturers are preferring domestic coal over imported due to higher prices of the latter.

"RB2 coal demand would pick up from the sponge sector only when its prices fall below INR 7,000/t levels or pellet prices correct further by another INR 1,000-1,500/t, making the production financially viable for us," said a sponge iron manufacturer based in Raipur.

The difference between SECL's 5,000 GCV coal price and its imported counterpart is currently assessed at INR 6,502/t at Vizag Port, while that of CCL's 5,000 GCV and its imported counterpart is currently assessed at INR 5,007/t, as per CIL data.

Owing to the sharp rise in South African coal prices over the last few months, majority of Indian sponge iron plants have raised their coal blending with the share of domestic coal overpowering that of imported.

A total quantity of 4.9 mn t of thermal coal has been auctioned in August by CIL and its subsidiaries and 4.5 mn t will be auctioned in September month.

South African imported coal prices remain elevated

The South African RB1 (6,000 NAR) grade price continued to remain elevated at $138.9/t as on 25 Aug'21.

Discounts for RB2 and RB3 this week are assessed at $18-19/t and $26-27/t respectively for Sept-loading cargo, while Capesize vessel freight from RBCT to Gangavaram is at $18/t.

Thermal coal vessel arrival from South Africa continues to remain under pressure as only 0.48 million tonnes (mn t) are set to arrive into India till 3 Sept'21 with the major quantity being imported by Adani Enterprise, followed by Tata Steel, as per CoalMint's vessel line-up data.

Short-term outlook

CoalMint believes South African thermal coal portside prices are likely to remain elevated in the near term amidst high imported RB1 prices and limited vessel arrivals of South African coal at ports. However, only a further correction in pellet prices and unforeseen shortage of domestic coal would lift portside prices in the coming weeks.