Rake shortage, high import prices push up S. African RB2 portside rates

Portside prices of South African RB2 (5,500 NAR) at Gangavaram Port have gone up by INR 2,000/t in a week's time. These are trending at levels of INR 13,500/t amid soaring global thermal coal prices. The ongoing domestic supply crunch, meanwhile, is resulting in limited rakes being supplied to the sponge iron sector.

In a bid to prioritise coal supply to the power sector, rake allotment for the non-power sector has reduced drastically leaving sponge iron plants no alternative but to opt for imported coal.

The disruptions in domestic coal supply amid heavy rains have already pushed down stockpiles with Indian power plants to a 3-year low, raising risk of outages.

Amidst the crisis, rake allotment for the power sector remains at 95% by Coal India Limited and its subsidiaries, while the non-power sector is left with only 5% which include cement, sponge iron, and many others industries.

According to CIL's data available till 28 Sept'21, the company dispatched 39.7 million tonnes (mn t) of coal to the power sector, up 11% y-o-y.

Also, in FY'22 (Apr-Sept'21), coal dispatches to the non-power sector from CIL stood at 243 mn t, up 24% y-o-y.

Adding to the woes is the sudden spike in RB1 coal prices by $30/t w-o-w after the Chinese government strengthened its coal procurement game ahead of the peak winter-heating months.

RB2 coal portside average trade prices

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

RB2 offers across all major ports are currently at INR 14,000/t, still lower than the landed cost at Gangavaram Port which equates to INR 16,000/t (after including all duties and taxes) as per the current RB1 index.

Large traders hold offers

Despite an increase in enquiries from sponge iron manufacturers, the rising trajectory of coal prices this week prompted large-scale traders to hold offers.

However, mid-sized and small traders concluded their deals in fear that, as per new rules, importers may cancel their contracts in case lifting is not done within 3 days once the delivery order (DO) is issued, informed market participants.

Deals concluded

In various confirmed deals collected by CoalMint between 27-30 Sept'21, a total quantity of 42,000 tonnes of RB2 coal has been traded at an average price of INR 13,000/t, ex-Gangavaram this week.

South African coal prices skyrocket

The South African RB1 (6,000 NAR) price has shot up to $200/t as on 30 Sept'21.

The severe domestic coal supply in China is forcing industries to bet aggressively on alternate destinations as shipments from Indonesia are getting hampered due to heavy rains.

The discounts for RB2 and RB3 grades stood at similar levels at $21/t and $34/t respectively for Oct-loading cargo. Capesize vessel freight from RBCT to Gangavaram has further risen to $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 by mid-October. But, any unforeseen event of continued rains or change in any government's policy may also support portside prices.