With the Indian government’s decision late last week to introduce a 15% duty on steel exports, coal buyers in the sponge iron sector have withdrawn their inquiries for imported South African coal, especially for RB3 (4800 kcal/kg NAR) as the same was in huge demand from India amid escalated RB2 (5500 kcal/kg NAR) prices. Subsequently its prices have seen a significant downward correction this week.
The decision of duty imposition by the government came as steel prices in India had risen sharply surrounding elevated raw material prices.
Following this, there has been sharp decline in India’s metallics and steel prices in the last few days with domestic sponge iron rates falling by INR 2,300/t, billet by INR 2,500/t and HRC by INR 3,200/t on a w-o-w basis. India exported a total of 13 mnt of flat steel in FY22, up by 24% y-o-y, customs data showed.
According to market participants, steel manufacturers have become skeptical of whether they would be able to compete in the overseas market amid such high duties and, if they cannot export, whether this volume would be consumed in the domestic market, where demand is already quite sluggish.
S.African coal inquiries retreat
Amid a domestic coal supply shortage and elevated RB2 coal prices this year, Indian sponge players were opting for more of RB3 purchases. However, this uncertainty in the steel sector has made Indian buyers move to the sidelines.
RB3 offers have also plunged in the domestic market to $190/t CFR levels, as against $235/t CFR offers 10-12 days back.
On the other hand, RB2 prices have not observed much decline like RB3 since its high calorific value allows good demand from Europe, Japan, Korea. RB2 offers were currently assessed at $250/t CFR India (panamax vessel).
Portside trading activity halts
Portside trading activity of imported coal has come to a halt as inquiries were far-fetched this week. Last trades for RB3 were heard at INR 17,500/t levels while the offers for RB2 were heard at INR 20,000-21,000/t ex-Vizag.
Coal-based sponge iron plants were already operating at lower capacities of 60-70% since past few months amid elevated coal prices and supply shortage. Now with the poor demand outlook for steel amid export duty, it is being estimated that their utilization rates would go down further by 15-20% in Q3 (July-September) 2022. This would further impact the volumes of portside trades in the upcoming months.
Short-term outlook
Weak buying appetite from India is likely to affect especially RB3 prices in the near term as the country is the biggest buyer of South African coal, accounting for 40% of its total exports last year. Portside prices are also likely to fall amid limited demand from the sponge iron sector.
Leave a Reply