South African coal prices have undergone slight correction this week, weighted down by the declining Australian coal prices.
Market participants have informed that a correction was due on part of the coal prices, which had already increased to significantly higher levels. Consequently, the South African coal index had witnessed a marginal fall of 1 USD from the previous week.
In addition, the prevailing discounts on South African 5500 NAR and 4800 NAR coal had also been raised to incite buyers, which had also resulted in a fall in coal prices. Discount on 5500 NAR coal has been increased from previous 7-7.5/MT to USD 8-8.5/MT, while discount for 4800 NAR coal was raised to USD 17.5-18/MT.
At present, South African 5500 NAR coal price was assessed at USD 87-88/MT, FoB Richards Bay, while 4800 NAR coal price was assessed at USD 68-69/MT, on FOB basis.
The early signs of price correction are not likely to sustain longer, as market participants have anticipated the gap between the production and supply in South African coal market is expected to stretch for the remainder of the year.
An Indian trader commented that although most of the inquiries were for July shipments, but miners in South Africa had availability for only Aug’18 shipments.
Indian coal buying is expected to remain subdued during the monsoon season for which they normally stock coal in advance. But the rainy season will also affect the domestic coal production from CIL, which would incite higher imports from the buyers.
Besides, it is likely that the Indian government may again prefer to ensure supplies to the power sector over non-power sector, in case there is a shortfall in domestic coal availability.
Moreover, South Korea’s imposition of a strict Sulphur cap on imported coal would probably increase the demand for South African coal imports into the country (replacing Australian Coal), as from Jul’18, South Korean utilities will be restricted to burning coal with an average Sulphur content of 0.4% over the course of the year, as part of government measures to combat air pollution.
The low Sulphur limit effectively knocks out much of the non-coking coal from Australia, which generally produces coal with a high energy value, but also higher sulphur content than that of South African coal.
At present, high CV South African coal is also cost effective than its rival Australian coal on the FoB basis. Based on the current market scenario, South African 6000 NAR coal quoted at USD 102-103/MT, FoB Richards Bay, was available at a discount of USD 12-13/MT. On the other hand, the Australian 6000 NAR coal is being offered at USD 114/MT on FoB basis this week.
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