There seems to be no stopping in the price surge of South African thermal coal over the past month, with the API4 index moving up by 38% m-o-m and currently trending at $84.05/t.
While the big question about what is driving the API4 index looms large, we unearthed the key factors in conversation with various market participants, including those based in South Africa:
- Usual holding back of physical stocks by coal sellers in South Africa
- Small miners going bankrupt due to unavailability of funds
- Key miners cutting down supplies in South Africa in order to create artificial shortage and provide support to prices of coal from other origins such as Australia
South African coal producers seem to be intentionally holding back stocks and not offering the same in the market to compensate for losses incurred due to lack of energy demand due to the pandemic.
Another reason is the South African currency depreciating further against the US Dollar, as the Rand is currently trading at USD 15.5 against USD 14.7 around the same period last year.
This apart, after China’s unofficial ban on Australian coal, especially in H2 2020, and the subsequent fall in prices, key miners with coal mines both in South Africa and Australia have taken up measures to curb South African coal supplies so that the prices of Australian coal, which can be used as an alternative by the cement and power sectors, garners demand from buyers in India, Pakistan, and Vietnam.
If we follow this logic, the price data maintained by CoalMint reveals that Australian coal prices seem to have got some support in the past month and have moved up by 18% m-o-m. The prices of 5500 NAR Australian coal currently stands at $45/t, FoB Newcastle.
Likewise, the price of South African RB2 (5500 NAR) is assessed at $58-59/t, FoB RBCT – up 20.6% m-o-m.
India is a top importer of South African coal. Although Indian demand has improved, it can’t be factored in as propelling prices of South African coal further up, as sufficient stocks are available at Indian ports and no panic buying has been reported despite rising prices.
Thermal coal stocks at Indian ports stood at 17.6 mn t as on 26thNov’20, against 11.2 mn t around the same time last year.
Outlook
CoalMint expects the rally in South African coal prices to continue in the coming days. While demand wouldn’t be driving this rally, South African coal prices are likely to be fuelled by supply concerns amid production cuts by miners in that country. In addition, the key Richards Bay Terminal going for maintenance shutdown for 15 days in Jan’21 complicates the supply scenario.
Leave a Reply