India: Increased inquiries from sponge iron units strengthen RB2 portside prices

South African RB2 (5,500 NAR) grade coal at various Indian ports continued to trade at higher levels this week due to strong demand from sponge iron manufacturers as domestic supply crunch continued and also due to its price rise in the recent domestic auctions.

Coal supply at power plants continued to remain critical as utilities are assessed to be left with 9 mn t of coal stock, sufficient for five days as on 22 Sept’21. Interestingly, amid escalated prices of imported RB2 coal, sponge iron manufacturers showed interest in procuring even RB3 (4,800 NAR) grade due to comparatively cheaper rates.

RB2 coal portside average trade prices

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

Following the sharp rise in imported South African coal prices late Thursday, portside RB2 offers also surged to INR 12,000/t at Gangavaram/Vizag ports, with majority of traders holding offers. Offers for RB3 (4800 NAR) also rose to INR 10,000/t at these ports.

Enquiries rise, but sellers hold offers

There was a slight improvement in sponge iron demand from the export market this week, which resulted in increased inquiries for thermal coal.

Mid-sized traders sold RB2 coal at levels of INR 11,000-11,500/t at Vizag and Gangavaram ports. The landed cost of RB2 as per the current index, equated to INR 14,500/t at Gangavaram Port (after including all duties and taxes) which makes the portside price of INR 11,500/t still cheaper against the landed cost. Sellers were heard giving this reasoning for holding offers.

Expectation of a further rise in prices going ahead and improving demand for sponge iron also compelled manufacturers to book the high-priced imported coal.

Thermal coal stocks with sponge iron units have reduced drastically in the current market situation as majority of the units work under reduced capacity utilisation.

“Currently, the sponge iron units are left with a day or two stock as domestic coal supply remains hampered, lifting via auctions is being allowed after six months and portside price of imported coal is quite elevated,” a Raipur-based importer said.

Deals concluded

In various confirmed deals collected by CoalMint between 20-24 Sept’21, a total quantity of 52,000 tonnes of RB2 coal have been traded at an average price of INR 11,000/t, ex-Gangavaram.

A total of 44,000 t of RB3 coal also has been traded at an average price of INR 9,400/t. Prices exclude cess and GST.

South African coal prices trade higher

The South African RB1 (6,000 NAR) grade coal price shot up by $7/t in a single day to $170/t as on 23 Sept’21 as the Chinese government urged its industry participants to establish long-term coal supply arrangements. Amid the domestic coal crunch in the country, the government also encouraged stocking of coal in off-season to meet the demand of the peak winter-heating months.

As heavy rains in Indonesia had already disrupted some shipments to China, South African coal prices rose sharply to this development.

Discounts for the RB2 and RB3 grade coal rose to $22/t and $35/t respectively for Oct-loading cargo. Capesize vessel freight from RBCT to Gangavaram is at $27/t.

Despite the increased portside trading activity, vessel arrival from South Africa continues to remain limited (due to high freights) as only 0.30 million tonnes (mn t) of South African coal is scheduled to arrive at Indian ports between 24-27 Sept’21, CoalMint data showed. 

Short-term outlook

CoalMint believes that portside prices of South African thermal coal would remain elevated and may even rise further amid the ongoing domestic coal shortage and elevated imported coal prices.