Seaborne prices for South African thermal coal plunged this week and coal offers once again reached to the levels recorded in the first week of May.
While the API Index price fell by USD 3-4/t w-o-w basis, the higher plunge was recorded in RB2 and RB3 grade prices, by USD 6-7/t.
The current offers for RB2 grade coal are reported at USD 39-40/t whereas RB3 is at USD 34-35/t, FoB RBCT port basis. The discounts being offered in both the grades are around USD 9-10/t and USD 12-13/t respectively and the freight to India is assessed at USD 10/t for capsize vessel.
What drove down the prices?
According to the reliable sources, the fall in crude oil prices can be attributed to the plunge in South African thermal coal offers. The oil benchmarks this week headed for a decline of more than 8%, after six weeks of gains which have lifted them off their April lows.
Oil prices dropped as fears resurfaced that a second wave of coronavirus could hit U.S. and stunt economic activity, U.S. crude inventories also rose unexpectedly to record levels as imports were boosted by the arrival of supplies bought by the refiners when Saudi Arabia flooded the market in March and April.
With the plunge in crude oil prices, pet coke prices (a by-product of the oil refining process) also came down by USD 5-6/t. Between thermal coal and pet coke, the end-user industry, especially cement sector opt for pet coke given its high calorific value. Subsequently, purchasers in Asian markets shifted their buying interest to pet coke, resulting in limited trade of thermal coal affecting its prices this week.
“The South African thermal coal market is majority times driven by sentiments. A slight change in market dynamics affects the country’s coal prices’, quoted a trader based in India.
He further added that “although the pet coke prices are higher than S. African thermal coal offers, the per CV (calorific value) landed cost of pet coke is lower against the same, resulting in buyers opting for pet coke.”
Outlook
In the short-run, prices are unlikely to fall beyond this level as there are hearsays in the market that South Africa may impose higher level lockdown in those parts of the country where COVID-19 cases are rising, although coal miners are doubtful of it.
In the long-run, the South African thermal coal prices are not expected to fall beyond this level as they have touched their lows. Market sources have informed us that buyers in India have increased their buying especially for Sep-Oct deliveries, when the situation is expected to normalise further.
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