Improving cost arbitrage on sea freight and a buoyant demand scenario at home is leading Indian importers to shift focus to better quality South African steam or thermal coal. Indonesia, however, continues to be the single largest supplier of imported coal to India.
According to data available with India Coal Market Watch (ICMW) – an initiative of Tata Steel and SAIL joint venture mJunction – India imported approximately 95 million tonnes (mt) of thermal coal used in electricity generation in 2012, up by 14 per cent from 83 mt in 2011.
Of the total, over 21 mt of steam coal was imported from South Africa, a 30 per cent rise compared with 2011. Nearly a third of imports from South Africa, during the last year, took place during the October-December quarter.
Overall, analysts suggest, India’s market share in South African exports – stagnant at 55 mt for the last two years – has increased from a little less than 30 per cent in 2011, to about 40 per cent in 2012. The corresponding share of China has increased from 16 per cent to 23 per cent.
Falling freight
As against Indonesian coal, South African varieties have low moisture content, leading to higher heat value and higher prices. While Indonesian coal of 6,300 kcal a kg (on gross as received basis) costs $74-75 a tonne (f.o.b), similar variety South African coal is priced at $89-90.
A declining trend in sea freight due to drop in crude prices as well as over supply of vessels, has made it beneficial for Indian users to use South African coal.
According to a prominent importer, average cost of importing coal from Richard Bay to Indian East coast by large capesize vessels is down by nearly 40 per cent from $16 a tonne to $10.5 in last 6-12 months. For smaller supramax vessels (50,000 DWT) freight declined by 20 per cent to $18.
Booming imports
Meanwhile, market sources suggest that coal prices are unlikely to see much upward movement in next 6-12 months. This is largely due to lower consumption outlook of China. According to a recent report in China daily, the emerging superpower is trying to reduce growth in domestic coal output to 4 per cent, due to stockpiling.
Also, Indonesian miners appear to be in a hurry to export low rank coal before the Archipelago nation forces them to preserve such assets for domestic industry. Market is abuzz that Indonesia will clampdown on such exports by 2014.
The emerging situation is beneficial for India, which is set to step up on imports in the near term to keep its power plants running due to an overall short supply of domestic coal.