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Indian buyers turn to other supply sources

03 August 2017 Marian Hookham

As spot prices for prime hard coking coal hover in the mid $170's, several private and smaller Indian steel mills are priced out of the spot market and are turning to other coal sources to replenish stockpiles, according to trading sources.

Canada's Teck appears to be a beneficiary from this pivot away from heated Chinese pricing. Jindal Steel and Power (JSPL) had been on the hunt for a while and reportedly picked up a cargo of Teck Standard coking coal at around $155/t CFR sources said, though this is likely to have been done weeks ago. JSPL is now believed to need only 10,000t - 20,000t of prime hard coking coal.

US producers/traders are offering mid-volatile coking coal to Indian buyers but are also struggling to get deals over the line. One trader told Inside Coal buyers were currently only prepared to make firm deals once the loaded vessel had cleared Singapore.

For traders this poses large risks given distances from the US and the volatility of spot markets at the moment.

"The problem is when the cargo arrives [from time of loading] and how the market may have changed over that time," said an Indian-based trader.

The state of India's steel industry means few end users are able to procure whole vessels and rely on traders to take on the risk of opening Letters of Credit (usually in countries other than India) and freight. All this risk is then borne by traders who sell off single vessels in various lot sizes.

Steel producers Bhushan Steel, Essar Steel and Electrosteel Steels are among 12 Indian companies facing bankruptcy proceedings at present. Just last week banks were given the greenlight to start insolvency proceedings against Bhushan and Bhushan Steel & Power Limited (BSPL) to recover bad loans.

Establishing the true value of coal that is parceled up and onsold to multiple buyers also confuses index formation given that the risk borne by the trader has to be costed and passed on to buyers. And because end-users are demanding a fixed price rather than an index-linked one, traders who hedge to manage risk are loath to do so given the market is so volatile.

Several Australian coal producers have told Inside Coal they were very loath to sell coal to debt-laden Indian mills given the inherent risk of recovering payment from companies undergoing restructuring proceedings.

Meanwhile, other than the US, Canada and Mozambique, the usual options for Indian buyers when Australian coal is expensive, Mongolian coking coal is also currently being offered to Indian buyers sources said. Offer levels are reportedly around $165-170/t CFR, with India to China freight estimated at $12/t.

The potential availability of Mongolian coal to seaborne markets emerged after the April Cyclone in Queensland when Japanese steel mills picked up a few cargoes to backfill losses from Australia.

Meanwhile, at least one Indian steel mill was reportedly willing to onsell a prime hard Australian cargo it was holding and swap its requirement for cheaper priced Canadian or Mozambican coals, sources said.

This is common practice in China where bigger steel companies often have trading arms which are able to take advantage of market conditions by selling stockpiled coal back to the open market.

The burning question of the moment is how much higher spot prices can push and how sustainable current levels are.

"When will prices go down? No one knows. I don't see it before the end of August," said one trading source.

As previously reported Australian supply is tight. South32's closure of the Appin mine, strikes at Glencore's Oaky operation and unspecified mining issues at BHP's Goonyella operation have all added to a general sense of tightness.

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Marian Hookham is a Senior Manager with IHS Markit and heads the team responsible for Australian, Indian and South African reports.
Posted 3 August 2017

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