The portside prices of South African RB2 (5500 kcal/kg NAR) coal seems to be oscillating since the start of Dec ’20. While the API4 index has been moving up over the past one month, the trend is not visible for S.African coal in the Indian market.
Starting this week, RB2 coal prices have seen a correction of INR 200-300/t. In confirmed deals heard by CoalMint, about 4,000 t of RB2 coal has been sold at INR 5,800/t ex-Gangavaram, whereas another 1,500 t has been sold at INR 5,700/t.
At Krishnapatnam port 8,000 tonne RB2 coal has been sold at INR 6,100/t while prices at Paradip and Mangalore port are heard to be at INR 6,400/t and INR 6,100/t. (All prices are exclusive of cess and GST).
Last week, RB2 was traded between INR 6,000-6,100/t while offers were as high as INR 6,400/t.
Sluggish demand from end-users
Market studies have revealed that an average rise of 35% in raw materials costs (cement: +23%, steel: +35%) since the beginning of the year have forced end-users, especially in real estate sector to halt their steel and cement purchases asking for government intervention to control prices.
This has resulted in limited thermal coal demand from the sponge sector which is a key user of South African coal.
Scare of new-strain virus
In addition, the recent scare spread by new coronavirus strain in the United Kingdom and subsequent lockdown in that country have caused quite a stir in other countries including India.
“In the case of domestic trades at Indian ports, we are selling RB2 at lower rates than the index price for fear that if lockdown is again imposed in India, we would have to suffer very big losses like the ones faced in Mar-Apr’20. Although chances are slim that a similar situation would reoccur in India, we don’t want to take risks”, remarked a trader based in Delhi.
In conversation with various other market participants, we also understood that while the importing giants are still offering RB2 coal at higher rates of INR 6,200/t, mid-sized and small ones are not ready to take risks in such uncertain times and want to clear stock before any unexpected situation arises.
Cheaper availability of domestic coal
South African coal is also facing stiff competition from increased availability of domestic coal. Sponge manufacturers, especially in Chhattisgarh (the largest sponge iron producing market in India) are opting for domestic coal instead of imported coal given high price disparity between the two.
SECL’s December auction price for G5 (5800-6100 GAR) G6 (5200-5000 GAR) grade coal averaged around INR 4,000/t and INR 3,055/t respectively ex-mines basis.
“Securing domestic coal via linkages or spot auctions is giving us cost advantage over imported coal. This is why we are opting for domestic coal. Mainly plants based in the coastal belt are currently finding it financially viable to use imported coal”, informed a sponge iron manufacturer based in Raipur.
Outlook
Given the holiday season (Christmas and New Year) in international markets, the index is likely to remain stable. However, CoalMint believes that portside prices for RB2 may see a further correction amid lacklustre demand in the domestic market.
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