Following its peers, Australian thermal coal prices have also been observing an uninterrupted increase since the last one month. The popular 5,550 NAR grade that averaged around $58/tonne (t) in May’21 is now being offered at $78-80/t, FoB basis for Jul-Aug’21 loading.
Amidst this rise, the buying interest from India waned significantly, especially in the latter half of Jun’21.
How cement sector is changing its raw material mix?
Indian cement producers, altering their fuel mix, from the previous usage of only pet coke, have been buying Australian thermal coal in large volumes since the second half of 2020, post China’s unofficial ban on Australian coal. During Jan-May’21, Australia’s thermal coal exports to India stood at 9.64 million tonnes (mn t), almost stable, against the same period last year.
But, with Australian coal prices surging, Indian cement manufacturers have once again come back to blending cheaper high-ash domestic coal (whose availability has increased) with low-ash imported pet coke. In Jun’21 alone, Coal India’s subsidiaries offered a total of 3.2 mn tvia various auction schemes.
Adding to the woes of Indian cement manufacturers are rising imported pet coke prices, which are up by 45% from Jan’21. The material is currently being offered in the range $132-144/t CNF India, depending upon the origin (US and Saudi Arabia).
Cost comparison with U.S. coal
A few weeks back, Indian cement producers were even opting for the 6,900 NAR US coal as it was cheaper as compared to the imported Australian variety and even pet coke on per calorific value (CV) basis. However, US coal prices have escalated now and are trending at $130-131/t, CNF India, making it cheaper against Australian 5,500 NAR (in case arrived in capsize vessel) but has costlier against imported pet coke on per CV basis.
Why Australian coal prices are escalating?
The rise in Australian thermal coal prices is majorly driven by increased demand from the ex-China markets like Japan, South Korea, and Taiwan which are preparing for the upcoming summer season from Jul’21 toSep’21.
These countries usually have two sources of thermal power generation, coal and liquified natural gas (LNG). However, gas prices shot up significantly this year in association with escalating crude oil prices and also because of increased demand from China, making power utilities there switch to alternative fuel.
Indonesia was a key supplier of thermal coal to Japan and South Korea, but sellers there are busy catering to China’s increased appetite. This gave an opportunity to Australian sellers to fill in the gap which is supporting its prices.
Near-term outlook
Any correction in Australian thermal coal prices is likely to be seen only if Chinese appetite for imported coal subsides after 10 Jul’21 post-the country’s 100th year Communist Party celebrations. This would free up Indonesian coal for exporting to other countries, bringing in some balance in the global trade dynamics. Also, this is possible only if Indonesian coal supplies remain uninterrupted amidst increasing Covid-19 cases in the country.
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