India: Portside South African coal trade softens as declining steel prices weigh on buying appetite

Portside trading activity of South African thermal coal remained lackluster this week amid weak demand sentiment from sponge iron manufacturers following the sharp decline in steel prices over the last two weeks.

Despite an increase in imported prices, portside RB2 (5500 kcal/kg NAR) grade coal offers remained in a tight range of INR 20,000-21,000/tonne (t) with very limited trades.

A few small parcel deals of RB3 (4800 kcal/kg NAR) grade coal took place owing to its competitive prices of INR 17,500/t.

Weak buying sentiment

Amid the declining steel prices in the domestic market, sponge iron manufacturers preferred to stick to the sidelines amid concerns about maintaining operating margins surrounding resilient raw material prices.

With the introduction of 15% duty on steel exports, its prices have come under pressure making domestic manufacturers sceptical of increasing production going ahead.

Following the sharp rise in thermal coal prices since late last year, operating costs of steel makers had increased substantially, leading to high steel prices this year.

Ever since the export duty has been introduced, PDRI sponge iron prices have softened over INR 3,000/t to INR 31,000/t exw-Raipur.

According to market participants, imported coal procurement plans have been kept on hold currently and amid the ongoing volatility in the global market, imports are likely to be affected.

Resilient imported prices

A spike in natural gas and oil prices has again pushed up South African RB1 (6000 kcal/kg NAR)  prices to $327/t FOB basis. The European Union’s announcement to ban 90% of Russian oil by the year-end, is boosting coal demand for power generation.

Logistics constraints at RBCT caused by the recent Transnet train derailment have also continued to support RB1 prices higher.

With weak buying sentiment in the domestic market, RB3 offers remained lower in the range of $180-190/t CFR levels, ex-Gangavaram.

Short-term outlook

The uncertainty over South African coal trade is likely to continue in the near term amid declining steel prices in the domestic market and elevated imported coal (South African) prices. The prospects of RB3 trade are set to gain prominence over RB2 due to the former’s competitive rates. Elevated imported prices, on the other hand, are also likely to limit any major bookings by traders.