- Petcoke offers move above $150/t but cement buyers show resistance
- Retail prices of US thermal coal spike as replacement costs rise sharply
India’s cement and industrial fuel markets tightened further this week, with imported petcoke offers moving decisively above $150/t CFR India and US Northern Appalachian (NAPP) coal prices rising sharply in the west coast retail market.
The important change is that both fuels are becoming expensive simultaneously. Cement producers had increasingly switched away from high-priced petcoke towards domestic coal and NAPP. But NAPP’s advantage is now narrowing as prompt stocks fall and replacement cargoes become substantially more expensive.
Petcoke moves above $150/t
The petcoke market strengthened further during the week.
By 26 August, 6.5% sulphur US Gulf Coast petcoke was around $86/t FOB, up $2.50/t w-o-w, while 4.5% sulphur material reached around $90/t FOB, up $1.50/t.
For India, 6.5% sulphur petcoke moved to around $148.50/t CFR, compared with around $144/t last week.
Physical offers are even higher. Current market feedback indicates offers around $149-152/t, $155/t and as high as $160/t CFR India. November-loading material has been indicated around $155/t CFR, reflecting substantially firmer replacement economics.
Cement buyers continue to resist petcoke
Despite firmer offers, Indian cement buyers have largely resisted following the petcoke market higher.
Market feedback indicates Ramco, Nuvoco, Orient and Dalmia are currently not purchasing imported petcoke.
This follows the sharp fuel-switching already evident in import data. Cement-sector petcoke imports fell to just 0.21 mnt in July, down 82% y-o-y, while January-July imports declined 59% to 2.66 mnt.
Several producers have instead increased their reliance on domestic coal and NAPP.
There are, however, signs that buyer resistance may be approaching its limits. Market feedback from a major cement producer indicates that it would consider an imported petcoke cargo depending on the final price, despite acknowledging that the prevailing market is around $150/t or higher.
This is significant because the fuels that allowed cement producers to reject expensive petcoke are themselves becoming more costly.
NAPP retail prices spike
The most dramatic movement this week has occurred in the west coast NAPP retail market.
Retail NAPP and ILB stocks at Kandla and Tuna fell from 147,695 t on 17 August to only 97,590 t on 24 August, a decline of around 34% in one week. Kandla held 43,518 t and Tuna 54,072 t, while weekly lifting reached 56,655 t.
The physical market reacted rapidly.
Offers moved from around INR 14,700-15,500/t earlier in the week before a reported 4,500 t transaction at INR 17,100/t on 26 August.
That compares with a 3,000 t NAPP purchase at only INR 14,200-14,300/t on 19 August, when future cargoes were being indicated around INR 14,700-14,800/t.
The increase has therefore been extremely rapid.
Replacement costs are driving trader pricing
Low prompt inventories are only part of the explanation.
The more important change is occurring in the replacement market.
US miner Core Natural Resources is currently offering December-loading NAPP at around $100/t FOB, considerably above the $91-92/t offers heard last week. Meanwhile, international traders are indicating November-loading NAPP into west coast India at around $155/t CFR.
Indian traders are consequently looking less at the historical acquisition cost of coal already at port and increasingly at what it will cost to replace those tonnes.
This is influencing the pricing of existing stocks as well as floating and incoming cargoes.
It also explains why retail NAPP prices can rise sharply even though underlying industrial demand has not suddenly exploded. The market is simultaneously pricing a shortage of prompt material and a much higher replacement cost.
Large vessel pipeline should ease physical scarcity
The current shortage may nevertheless prove temporary.
The vessel lineup shows around 0.69 mnt of upcoming US coal cargoes, with Prairie and Jiho Bloom followed by Sakizaya Champion, George H, Patagonia, Metis Spirit, Foxton, Medi Noshima and Cemtex Diligence. Most are expected at Kandla/Tuna between end-August and September.
This pipeline is substantial relative to current retail stocks of less than 0.10 mnt.
As these vessels arrive, the extreme prompt shortage should ease. Market feedback has consequently suggested that part of the current INR 17,000/t market reflects scarcity created by the timing gap between depleted port stocks and the arrival of fresh cargoes.
But greater availability does not necessarily mean a return to previous prices.
If replacement NAPP is around $155/t CFR west coast India, traders holding incoming cargoes have little incentive to price them substantially below the cost of replacing those tonnes.
Outlook
India’s cement fuel equation is therefore becoming considerably more complicated.
Petcoke physical offers have risen towards $149-160/t CFR India, while November NAPP replacement cargoes are around $155/t CFR west coast India. At the same time, prompt NAPP has traded as high as INR 17,100/t in the retail market.
Incoming NAPP vessels should ease the immediate physical shortage during September and could remove some of the scarcity premium. But replacement economics are increasingly setting traders’ expectations.
Domestic coal consequently remains important for cement producers capable of accommodating its lower calorific value and higher ash.
The key development is that the alternatives which allowed Indian cement producers to reject expensive petcoke are themselves becoming more expensive.
If NAPP replacement remains around $155/t CFR while petcoke stays above $150/t, the decision will increasingly come down to delivered usable energy cost and plant-specific fuel requirements rather than headline $/t prices.
Petcoke has not become cheaper. NAPP has simply caught up.
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