Soaring Overseas Coal Prices Hit Indian Buying Prospects

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India is one of the major markets of South African coal. The country also buys large volumes from Australia and Indonesia as well to meet its demands. Australian thermal coal prices have recently been surging due to Chinese buying.

According to coal traders, the Australian 5,500 NAR, one of the popular coal grades bought by Indian buyers had surged to $137/t FOB as against around $40/t, a year ago, a steep increase of around $100/t in a year’s time span.

Though last year’s price could be attributed to the coronavirus induced lockdown and factories being largely shut in India and worldwide, the steep increase has caught everyone off-guard.

South Africa’s RB2 has always been in great demand from sponge iron manufacturers and with domestic supply of coal being largely supplied to power plants in India, the demand for South African coal has increased.

So what has been the reason for increase in coal prices in South Africa?

Well, South African thermal coal prices have been steadily climbing from May 2021 onwards with the RB2 FOB price from around $85/t FOB in May to around $170/t in September.

According to coal traders the spurt in prices is attributed to the Chinese buying factor. Following an escalation with Australia, China has put an unofficial ban on Australian coal from October 2020 onwards. The ban created an unprecedented price imbalance in the coal market worldwide.

China started buying both RB1 and RB2 varieties in large volumes to meet its domestic demands. Another factor being that it couldn’t buy from Indonesia due to heavy rains impacting production in the country and creating disruption in coal supply to China. With no other options, China approached South Africa.

With winter round the corner, Chinese power companies are stocking up thermal coal besides entering into long-term agreements with South African entities. This is likely to continue until mid-November at least and market analysts believe that coal prices may stay firm in the medium term due to this demand from China.

Indian buyers looking to buy good quality coal will have to shell out extra money to meet their demands.