South African RB2 (5500 NAR) coal portside prices have been unchanged at INR 5,500/t (ex-Gangavaram) for almost a month, with scant buying interest despite sponge iron prices rising by 15% during the same period. However, improved domestic supplies and key buyers refusing to accept higher offers led to an impasse in portside trade.
CoalMint spoke to industry stakeholders to get their views on the current market situation. Here are the key takeaways:
Rise in sponge iron prices is not demand-driven
Market participants believe that the rise in sponge iron prices in the past one month is majorly driven by increase in pellet prices (raw material), which went up by 10% m-o-m basis. Moreover, the sponge iron producers are controlling their supplies and are making purchases as per their on-spot requirement resulting in reduced RB2 portside trade.
Demand for finished steel has turned tepid
In Jan’21 India’s domestic finished steel, HRC price touched a high of INR 58,250/t ex-Delhi, up by 40% y-o-y basis. However, after government reduced customs duty by 2.5-5% on several finished steel products, demand for finished steel reduced in the subsequent weeks and thereby impacting sponge iron and RB2 coal requirement also.
Government reduced duty on scrap imports
Another major announcement that Indian government made in the Finance Budget for FY22 is the reduction of duty on scrap imports, thus encouraging secondary steel producers to increase their scrap usage which is an alternate to secondary steel produced using sponge iron.
Uncertainty surrounding COVID lockdowns
The rising number of Covid cases has led to strict restrictions and partial lockdowns in states like Maharashtra, Punjab, Kerala, Rajasthan, and Tamil Nadu. This has once again created uncertainty in the market and consumer demand has retreated, thus adversely impacting steel and coal demand.
Sponge iron producers procuring more domestic coal
Amid the given sluggish demand scenario, sponge iron manufacturers especially in the Raipur region are not in a rush to increase their production levels and are opting for domestic coal that has low FC and thus lower yield but provides a better cost advantage of INR 1,500-2,000/t over the imported RB2 coal.
Which brings us to the key question – What’s ahead?
Although at present buyers have the negotiating power and there limited support to RB2 portside prices, CoalMint expects that this would not last for long as escalated freight rates in past few weeks have kept importers away from making fresh bookings.
CoalMint’s vessel-line-up data reveals that 0.53 mn of South African thermal coal is expected to arrive at Indian ports in March and about 0.35 mn t is in berthing, which is quite low compared to the 3 mn t coal that arrives in India each month from South Africa. Moreover, the thermal coal stock at Gangavaram port has depleted by 6% w-o-w basis and was recorded at 2.78 mn t at the end of last week.
With the pre-monsoon restocking starting soon and insufficient stock at the ports, RB2 portside coal prices are likely to recover in the upcoming days.
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