Cost concern prompts Indian buyers to shift from South African to Australian coal

In conversation with various market participants, CoalMint has learnt that amid increased South African coal prices this month, India coal buyers are looking at procuring Australian coal instead, which can be used as its alternative to a certain extent.

Our analysis of price data reveals that Australian thermal coal’s landed cost to India is lower than that of South African coal.

In case of South African coal, the buyers in India are avoiding direct imports and are rather opting to purchase from resellers that have stock at ports, given the sufficient availability.

“With enough thermal coal stock at port, buyers have got the bargaining power during COVID times”, quoted a sponge manufacturer based in Central India.

The stock and sale offer of South African RB2 grade thermal coal at India’s Gangavaram port in east coast has come down by INR 100-300/t this week and is assessed at INR 4,500 – 4,700/t. This excludes cess and GST.

India: 5500 NAR thermal coal price for September shipment

What is driving Australian coal shipments to India?

CoalMint’s vessel line-up data reveals that, Australian thermal coal shipments to India in Aug’20 has surged by 19% m-o-m basis at 0.56 mn t.

The growing tension between China and Australia that started in April this year is one of the key reasons that Chinese coal buyers are hesitant to buy Australian coal. Subsequently, Australian sellers are having to focus on alternate markets like India and Pakistan and also have to offer coal at cheaper rates to fight off competition. China, Japan and South Korea are the three major markets for Australian thermal coal suppliers.

“Coastal power plants in India are opting for Australian coal over South African, the former being cheaper option at present. Although the blending cost of Australian coal is a bit higher as power plants are designed to use South African coal, the cost arbitrage between the two is still making Australian coal a preferred and cheap alternative”, quoted a reputed trader based in India.

Market participants believe that Australian suppliers would continue to be a threat to the South African coal market share in the coming months, at least till Sino-Australia diplomatic relations improve.