India: South African RB2 grade thermal coal faces tough competition from domestic coal

The portside prices of South African thermal coal in India continues to remain low and static amid reduced demand especially from the sponge sector.

The sponge manufacturers especially based out of Raipur region in the State of Chhattisgarh (a major steel hub) are preferring domestic coal over the imported coal available at ports, as the former is currently available at cheaper rates compared with the imported material, CoalMint learned from market sources.

Domestic vs imported cost comparison

• In the recently held spot auction held by Coal India’s subsidiary SECL, Bilaspur (Chhattisgarh), the commonly used grades by the sponge sector; G5 (GCV 5800-6001 kcal/kg), G7 (GCV 5200-5500 kcal/kg), and G11 (4001-4300 kcal/kg), prices were recorded at INR 3,011/t, 2,543/t and INR 1,280/t respectively.
• Due to the short distance between Bilaspur and Raipur-Raigrah, the transportation takes place via trucks, and the cost of which comes to around INR 800/t (maximum).
• On the other hand, the portside prices (loaded onto rake) for RB2 (5500 kcal/kg NAR) coal ex-Gangavaram are assessed at INR 4,400/t (excluding cess and GST), while the freight to Raipur comes around INR 1,400-1,500/t.
• This makes the total cost for RB2 around INR 5,800/t landed, whereas domestic coal cost totals around INR 3,300/t. (Both the costs will further include unloading and few other charges).
• Adding to this, the transit loss in rake movement is on a higher side against the transit loss via truck, which is why sponge players are preferring domestic over portside coal.

Government’s focus on import reduction

After witnessing a slump in domestic coal demand, CIL has planned to replace imports with higher grade coal supplied from its mine under a provision named ‘Import Substitution’.

This can be verified from the company’s latest data that shows its coal production and dispatch in Sep’20 up by 32% y-o-y basis at 40.5 mn t and 46.5 mn t respectively. Import substitution reform is set to save considerable amount of forex that are lost in imports.

Outlook

In the coming months, we believe that in case there is an increased availability of domestic thermal coal in the Indian market and prices remain at similar levels, the sponge iron units away from coast would prefer domestic coal over imported coal. Whereas, those units based near coastal areas would continue their reliance on imports. However, this would lead to an overall reduced demand for thermal coal imports in India.