The rally in S.African thermal coal prices does not seem to be losing steam as RB1 (6000 NAR) thermal coal prices have risen 28.7% from $87.67/t in Jan’21 to $112.8/t at present (as on 4 June’21).
Key factors driving the rally:
Increased interest from China:
China is emerging as one of the key buyers of South African coal since the last three months, despite the issue of trace elements, giving major support to the country’s thermal coal prices even in the absence of regular demand from India.
The altered trade dynamics after the Chinese ban on Australian coal last year and domestic coal shortage in China due to the increased safety checks (amid rising accidents) has prompted Chinese traders to look for coal from overseas destinations like South Africa, Indonesia, and Russia.
South African coal exports to China have jumped manifold in the last five months from 0.17 mn t in Jan’21 to 0.87 mn t in May’21, reveals CoalMint’s vessel-line up data.
Demand support from Pakistan, Vietnam
While S.African coal demand from its key buyer, India, has taken a backseat since the past few months due to resilient freight rates and the second wave of the pandemic, imports from Pakistan and Vietnam have seen a remarkable increase.
This is because both the countries, which procure a major portion of their coal from Indonesia, have to now look for high CV coal from South Africa and even Australia as China is back to buying significant quantities from its top importer, Indonesia.
As per CoalMint’s data, S.African coal exports to Pakistan have increased by 39% from Jan’21 to May’21 whereas exports to Vietnam have almost doubled to 0.21 mn t during the said period.
Supply-disruption in South Africa
The disruption at Transnet’t rail tracks that started in Jan’21 with regular maintenance shut-down, has continued till now due to unforeseen reasons of bas weather and derailment mishaps. This has majorly impacted thermal coal supplies from mines and availability of coal stocks at RBCT Port.
Coupled with this is the issue of labour shortage at mines due to the Covid restrictions that are likely to worsen in the coming days with the recent announcement of stricter lockdowns.
Now, amid supply disruptions and increased Chinese interest, majority of the cargoes from June and July shipments have been sold out and RBCT has been facing scarcity of coal stocks over the few weeks, informed market participants.
Will the rally continue?
While demand for S.African coal from China is likely to continue in the coming months due to the ongoing trade war between Australia and Beijing, S.African coal prices may continue to find support.
Also, in case freight rates see a correction, demand from India, along with Pakistan and Vietnam, would also pick-up, further bolstering S. African thermal coal prices.
The only possibility of S.African coal seeing any dramatic correction is increased domestic coal production in China or introduction of import quotas in the country that would ultimately cool-off China’s escalated appetite for imported coal.
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