The COVID-19 pandemic that has brought the entire world to a standstill has adversely impacted various trades with coal being no exception to it.
South African (SA) thermal coal suppliers to India are currently under immense pressure due to absence of demand from Indian buyers, falling prices and subsequent lowered margins.
This week, the API4 index price for RB1 grade coal are at USD 57 whereas RB2 and RB3 prices are heard to be in the range of USD 32-33/MT and USD 27-29/MT, FoB RBCT port basis. However, according to market sources, there is no buying at the index prices at present and RB1 grade coal are being traded at USD 51-52/MT whereas RB2 and RB3 are being traded in the range of USD 43-44/MT and USD 37-38/MT respectively, CNF India basis.
With no buying interest from India, the South African sellers are ready to sell RB1 grade coal below the index price and are now focusing on other countries like Pakistan.
The stock and sale price for RB2 and RB3 grade coal are being heard at INR 4,000-4,100/MT and INR 3,400-3,500/MT respectively, ex Gangavaram port.
Why absence of demand from India?
India is under lockdown for a month restricting all the industrial and trade activities. Although some relaxations have been given to few businesses in rural areas starting from 20 April, the sponge iron and cement manufacturing units (key users of thermal coal) have not picked up the pace yet due to various guidelines that restricts their full capacity utilisation and the absence of manpower. This has adversely impacted India’s thermal coal demand. Apart from this, the non-coking coal buyers in India have sufficient stock with them before the lockdown happened resulting in almost negligible buying interest of South African coal from India at present.
Pressure on South African suppliers
In case of South Africa which is also under lockdown for a month till 30 April, government has allowed miners to operate at 50% of their capacity starting from 16 Apr’20. While large miners are able to survive by supplying coal to the state utility firm Eskom, small miners that are usually dependent upon exports are already facing pressure to reduce it amid poor demand from India which contributes to around 60% of South African total coal exports.
SA coal prices become more competitive
Market experts are of the opinion that the fall in South African thermal coal prices is higher as compared to Indonesian, Australian, and U.S. coal as the South African thermal coal had enjoyed a higher premium over others during the winters of 2019. Now with such a dramatic fall in prices, South African coal has become more competitive and is being offered more aggressively to other Asian countries. But this change in trade dynamics will still weigh down the country’s exports in the near term due to subdued demand from its top export destination, India.
According to Mr. Rodrigo Echeverri, head of Noble Resources, the seaborne thermal coal market is likely to have an oversupply of 40 MnT due to demand-supply imbalance amid absence of significant reduction by thermal coal suppliers in Indonesia andSouth Africa.
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