India: South African RB2 coal portside prices gain support amid limited stock and escalated index

After being under pressure for most part of April, South African RB2 (5500 NAR) grade coal portside prices strengthened this week as the same rose by INR 100-500/t w-o-w basis across various ports, with traders expecting a further rise in the upcoming days. This increase in portside prices is majorly triggered by two factors as below:

Limited thermal coal stock at ports

CoalMint’s stock report reveals a decline of 4% w-o-w at Gangavaram port as the same stood at 1.98 mnt whereas at other ports, the South African coal availability continues to remain tight.

Adding to it, the port inventory is expected to decline further in the coming days amid limited quantity of coal arrival from South Africa. CoalMint’s vessel line-up data shows about 0.62 mn t of South African coal to arrive at Indian ports between 6-11 May with highest quantity of 0.16 mn t arriving at Gangavaram port at Vizag port respectively.

The Indian importers are avoiding bookings of South African coal since past few days amid escalated freight rates. The capsize vessel freight between RBCT to Gangavaram port has surged by 81% in past two months and is currently trending at $20/t.

Sharp rise in the API4 index this week

The South African API4 index has registered a rise of 5.5% w-o-w basis and closed at $96/t on Wednesday. This increase is triggered by disruption in coal supplies to RBCT port due to derailment at Transent’s rail line occurred on 28 April, which is expected to resume operations by 8 May.

Adding to the woes of South African coal importers are the new guidelines issued by Transnet National Ports Authority (TNPA) that has mandated stricter COVID-19 protocols at its 8 commercial ports in South Africa. This is likely to result in longer-than-expected waiting period and increased demurrage cost of coal, ultimately adding to the imported cost of coal.

The discounts for RB2 and RB3 coal this week have corrected by $2-3/t this week and are assessed at $15/t and at $25/t respectively.

Portside RB2 coal prices this week

*Prices in Inr/t and ex-Cess and GST

Weak buying sentiment rules domestic market

With the rising COVID-led restrictions around the country and waning demand, Indian buyers of RB2 coal remained cautious of making any major bookings across various ports.

The sharp rise in RB2 coal prices over the last few months already has prompted several sponge manufacturers to switch to domestic coal as an alternative to the South African RB2 grade.

Now the rise in domestic portside prices has weighed on the buying sentiment of several sponge players who were waiting for prices to settle down. Though many are yet to book their requirement before monsoon season, they are mostly unable to do so at this higher price, a Delhi-based trader said.

Several sponge manufacturers in states like West Bengal, Punjab, Maharashtra, Chhattisgarh continued to work under minimum load or has suspended their operations amid the rising COVID cases and strict lockdown curbs.

Short-term outlook

CoalMint believes that with the monsoon procurement demand gaining strength in the coming days and issue of oxygen shortage at steel plants easing, RB2 coal demand is expected to pick up supporting the portside prices. However, rising COVID-led restrictions disrupting operations would still continue to cap a sharp rise in prices.