The South African thermal coal API4 index has touched new lows this year amid the outbreak of COVID-19 pandemic. Although, it started recovering towards September-end amid the news of Australian coal mines suspending operations, the same started falling once again in the second week of October.
However, starting November, the API4 index is observing a recovery as it has moved up by 6.5% in past eight days and is currently assessed at $62.1/t (price of RB1 6000 NAR kcal/kg).
Although there is no change in fundamental demand for South African coal especially from India (its biggest importer), the key question among the market participants is that what is driving up the index prices.
South African labour union threatens to strike
According to the market participants, South Africa’s National Union of Mineworkers (NUM), one of the biggest mining unions in South Africa has been threatening to call a strike at several mining companies over wage dispute. This includes strike at coal mining majors, Exxaro, Anglo American, South32, Glencore and Seriti Resources.
Together, these firms produce just over half of South Africa’s 250 mn t annual coal output, with the first four being the largest players in the country’s 75mn t export market.
The mining majors confirmed that they are engaging with the union to find a solution, NUM has made it clear that they would not settle for less amid rising inflation in the country and would launch a major strike in case of no agreement.
Supply issues and improved domestic demand
On the other hand, mining companies in South Africa are already dealing with supply concerns as large mining companies have put individual pits on care and maintenance earlier this year amid COVID-led lockdown and reduced energy demand.
The sizeable overheads, fixed-cost structures and slower reaction time because of their regulated structure makes it difficult for these firms to adjust quickly to changing market dynamics.
The domestic demand for thermal coal is also increasing in South Africa amid colder winters this year and economic activities picking up pace gradually post pandemic-led tepid demand.
RB2 and RB3 price updates
On FoB basis, RB2 (5500 NAR) grade coal is available at $46-47/t and RB3 (4800 NAR) is being offered at $34-35/t.
On CFR India basis, RB2 is being offered at $58-59/t (discounts around $10/t) and RB3 is at $45-46/t (discounts around $17-18/t). The freight between RBCT to Indian ports (both east & west) is hovering at $12/t.
Outlook ahead
In the upcoming months, South African thermal coal prices are expected to remain firm as October-March months usually have colder temperatures in the key consuming countries and energy demand increases. Apart from this, Eskom’s unit 2 at Kusile Power Station has attained commercial operation status in October-end which means that its domestic demand for coal would increase in the following months.
Also, if NUM launches a strike at the coal miness, a major supply disruption would be created resulting in subsequent hike in thermal coal prices.
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