South African Thermal Coal Prices remain Subdued Post Easing of Lockdown Restrictions

Coronavirus lockdowns have adversely hit the thermal coal globally markets with the falling power consumption coupled with sluggish demand in its key consuming sectors (steel and cement).

*South African thermal coal prices tumbled by 21% since the lockdown was announced in the country, from USD 68/MT in March to USD 53/MT in mid-May.

*Market participants anticipated a curb in S. African coal supplies, benefiting its prices amid a halt in country’s commercial coal mining operations for 15-20 days (except for mining operations to supply coal to power utility form, Eskom).

*Nonetheless, the lockdown announcement by its key coal importing countries like India and Pakistan to contain COVID-19 spread subsequently lowered their thermal coal requirements and so does the fossil-fuel’s prices.

*In the latter half of April (10 days before the country’s lockdown ended on 27 April) the South African government agreed to allow the mining sector to operate at up to 50% of its production capacity thus increasing thermal coal supplies in the country.

*On the demand side while India and Pakistan allowed operations of some industrial activities in in non-containment zones, they were not enough to boost the country’s coal demand to pre-lockdown levels and support the prices.

*Another key coal importer, South Korea’s thermal coal demand from the country also dropped to nil in last three months due to coronavirus, temporary coal plant shutdowns to reduce the country’s chronic air pollution, and increased competition from Australia and Russian peers.

Price assessment

The API 4 price index for South African thermal coal this week is reported to be at USD 53/MT, FoB basis whereas RB2 and RB3 grade price are assessed to be in the range of USD 40-42/MT and USD 31-33/MT, FoB RBCT port basis for May end deliveries.

In case of India, no major trade deals have been rported. However, the discounts being offered on RB2 grade coal is around USD 9/MT and that for RB3 grade it is around USD 13-14/MT. The freight for capsize vessel is hovering in the range of USD 9-10/MT.

Outlook

Market participants are of the opinion that worst is over for South African coal and that prices may not fall further as industrial activities across various nations are starting to pick up their pace. In fact, vessel line-up data maintained with CoalMint shows that coal shipments from South Africa have improved w-o-basis.

Qty in MnT

On the other hand, between 1 – 11 May, a total of 24 vessels have been discharged from RBCT port with a total quantity of 1.99 MnT with four vessels being exported to India (quantity 0.53 MnT) followed by Pakistan (0.12 MnT), UAE (0.22 MnT), Vietnam (0.31 MnT) and others being diverted via Singapore route. Currently, there are 4 coal vessels at berthing position and 1-2 vessels at anchorage position at RBCT port.