India: High port-side prices of S.African RB2 coal driving buyers to RB3

Trading activity in RB2 5,500 NAR grade coal remained largely limited this week as sponge iron manufacturers were seen adopting a wait-and-watch approach.

Amid elevated RB2 grade prices, several sponge manufacturers were heard switching to RB3 (4,800 NAR) grade coal due to its relatively lower price levels.

RB2 coal weekly average portside prices

*Prices in INR/tonne and ex-cess and GST

Amidst absence of new cargo arrivals at Haldia and Paradip ports in the upcoming weeks due to high freight rates, old stock is being sold at higher levels. At Haldia Port, RB2 coal offers are heard at INR 9,800/tonne (t) this week.

Sponge iron units buying RB3 coal

Reeling under the pressure of higher costs of production against the selling price, many sponge iron plants are heard to have shifted their focus to RB3 (4,800 NAR) grade coal currently.

A total of 30,000 t of South African RB3 (4,800 NAR) grade coal was sold at an average price of INR 6,600/t at both Gangavaram and Vizag ports this week.

According to market participants, amid weak sale volumes and tepid demand from the end-user segment, sponge iron units are targeting lower production and using RB3 grade coal that results in lesser yield per tonne which is a more viable and economical option currently.

However, many sponge iron plants have even moved to the sidelines in anticipation of correction in RB2 coal portside prices.

“People are now skeptical about sponge iron prices and its demand. Large sponge iron units have already stored their two-month coal stock as procuring imported coal during the monsoon raises its moisture content,” said a trader based in Odisha.

Rally in South African coal prices takes a breather

After rising sharply since the last few weeks, the rally in South African RB1 (6,000 NAR) grade coal eased slightly to $114.2/t, down 2% week-on-week (w-o-w).

However, major bookings from India were limited due to the weak domestic demand in the country.

“Two of our vessels are coming from RBCT in the current as well as next month…Given the weak demand scenario in the domestic market, importers are wary of going for any major bookings as we are already carrying out portside trade at a loss,” a reputed importer based in Delhi said.

The discounts for RB2 and RB3 this week are assessed at $18/t and $28/t respectively, while capesize vessel freights between RBCT to Gangavaram continued to remain firm at $17/t.

What lies ahead?

According to CoalMint analysis, South African thermal coal portside prices are unlikely to see any major correction in the near-term due to the limited stocks available at Indian ports and also because of supply issues in domestic coal due to ongoing monsoon season.