With the sharp rise in demand for thermal coal from alternate sources by the sponge iron industry, portside prices of South African coal have eased over the last two months, especially post-duty imposition on steel exports in the last week of May.
Sponge iron prices have dropped by INR 10,000/tonne (t) from their highs in March 2022 and by INR 1,500/t since the duty announcement. Prices of PDRI are currently assessed at INR 33,200/t exw-Raipur.
Price trends and buying patterns
Indian DRI producers switched from RB2 (5500 NAR) to RB3 (4800 NAR) grade coal after the Russia-Ukraine crisis erupted, leading to a drastic surge in high and mid-CV coal prices.
But amid sluggish demand, they have now even curtailed their sourcing of RB3 as well, bringing down its prices in the process, since the past one month.
Prices of low-CV South African RB3 4800 kcal/kg NAR and mid-CV RB2 (5500 kcal/kg NAR) have dropped by INR 1,000/t m-o-m to INR 14,500/t, and INR 17,000/t respectively at Vizag, as per CoalMint’s assessment.
Interestingly, a difference has been observed in the coal blending ratio of DRI producers in different regions across India.
Central belt: Sponge iron units located in the Central belt (Raipur and Raigarh) are continuing with the traditional blend of South African and domestic coal from South Eastern Coalfields Ltd. (SECL), citing low volatile matter (VM) in Russian coal as the reason — which increases the carbon consumption rate and thus per tonne requirement of coal, which makes it costlier.
The portside price for 56% FC 6000 NAR grade Russian coal is heard at INR 17,000/t whereas the 68% FC high-CV coal is at INR 19,00/t on the eastern ports.
Morever, DRI units were uncertain about Russian coal’s capability to control the heating temperature due to its high fixed carbon (FC) content. Russian 6000 NAR has an FC of 55-56%, while the South African RB2’s is at 51-52% and RB3 is 47-48%.
Many sponge units, especially the larger ones, are keen to use Russian coal on a large scale. But, small-to-mid sized DRI units being uncertain about the outcome, are continuing with their traditional blends.
Eastern & southern belts
Russian coal usage, on the other hand, is gaining traction in the eastern (West Bengal, Odisha) and southern belts (Bellary) as the DRI producers there are heard to be using a blend of Russian and coal from Eastern Coalfields Ltd (ECL) to compensate for the the low VM in the former.
Although very few sponge players have bought Russian coal in bulk volumes, as they are still experimenting, which is why portside trades in the same were heard in small parcels of 2,000-3,000 tonnes.
Imported coal prices
Europe’s strong demand for coal continued to keep South African high-CV RB1 (6000 NAR) grade prices high at $352/t on an FOB basis, up slightly by $8/t w-o-w. Russian energy giant Gazprom had recently announced plans to halt its gas supply from 31 August-2 September to Europe. Global LNG prices continued to edge higher as market participants feared that further restrictions on European gas supplies will heighten the energy crunch.
RB3 (4800 NAR) prices are currently heard at $150/t FOB while Russian 6000 NAR is at INR 187-190/t CFR Paradip.
What lies ahead?
South African coal prices are likely to remain in a tight range amid a slower pace in procurement by sponge iron manufacturers in the central region and due to the increasing usage of Russian coal in the eastern and southern India.
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