Thermal coal prices in South Africa have again touched the crucial $300/t-mark as cargo shortage at RBCT Port and railway issues have led to renewed concerns over exports from the country at a time when demand from Europe and Asia remains strong.
With the tight domestic coal supply situation in India currently, sponge iron manufacturers have opted for advance bookings of RB2 (5500 kcal/kg NAR) grade coal for June vessels.
The bookings are being made on an index-linked basis as RB1 (6000 kcal/kg NAR) June index prices were at $294/t FOB as on 4 May, up by $26/t d-o-d.
South Africa’s rail operator Transnet had recently declared force majeure on its “take-or-pay” contracts as the legal issues surrounding the disruptions were “beyond its reasonable control”. Under this force majeure, buyers cannot penalise Transnet if it fails to provide the decided railings for coal transportation.
Higher trucking costs
As per latest reports, South African coal miners are deploying about 400 trucks on the road in a day to speed up coal transport that has been affected by railway line disruption emerging out of poor maintenance, lack of spare parts for trains, copper cable theft, and vandalism.
According to the country’s mining giant Menar, trucking coal is a cost-intensive process that is about four times more than rail, especially with higher fuel rates.
However, with record-high coal prices since last year, miners have been able to absorb it for now and have focused mainly on expediting coal transport to the port.
However, the frequency of export has been quite stagnant since the last few months, strictly restricted to 5 mnt, despite strong demand from Europe, Japan, and several other countries imposing sanctions on Russian coal.
As per CoalMint vessel line-up data, thermal coal exports from South Africa rose marginally by 2% m-o-m to 5.3 mnt in April.
Shipments to India decline, portside stock limited
Shipments for India, particularly, have been on a weaker side from South Africa as it fell to 1.6 mnt in April, for the second straight month, down by 12% m-o-m, CoalMint data showed.
For the first four months of the year, South African coal exports to India fell sharply by 55% y-o-y to 8.8 mnt, indicating the drastic decline in procurement by sponge iron manufacturers.
Thermal coal stock at Gangavaram Port also has declined by 52% y-o-y to 1.02 mnt in April, as weak buying appetite by sponge players curtailed any major imports by traders.
Muted portside trade
The sponge iron sector had largely restricted itself to small parcel trades in the last few months, waiting for price correction before making any major bookings.
According to market participants, majority of the sponge iron units have either been working under 50% capacity utilisation or have shifted to temporary shut down, to mitigate incurring losses.
Weaker availability of domestic coal has only exacerbated the situation. CIL’s coal dispatches to the sponge iron sector have witnessed a 14% y-o-y decline to 8.13 mnt in FY22, ministry data showed.
With elevated imported coal prices, these units have shifted back to using a blend of domestic and imported coal in the ratio of 70:30 since late last year.
Short-term outlook
With elevated South African coal prices and domestic coal supply crunch, procurement demand by sponge iron manufacturers weakens this year. However, with the advent of the monsoon season nearing and the lack of coal stock at hand, procurement in small parcel trades from the sector may also continue.
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