New Delhi - Indian buyers who expected to increasingly import South African coal in the next decade wanted a new price index to reflect the value of lower-grade coal sales to the domestic market, traders and consumers said yesterday.
Specifications by trading platform globalCOAL for benchmark local export coal have been accepted as the industry's standard, but buyers want a separate index for supplies to India after being caught out this year by price volatility.
"We believe that we are often paying a premium to the rest of the market, particularly Europe, for South African coal. We buy in small vessels to expensive ports," said an Indian importer, who asked not to be named.
"We would like to see a free-on-board Richards Bay index just for India sales. It could also reflect the different qualities bought by India because we are not always buying 6 000 calories per kilogram coal," he said.
Other Indian importers said another FOB index and a cost-insurance-freight (CIF) India index would help them hedge their buying and lower their exposure to sudden price movements and freight costs.
Senior officials from South African exporter Total Coal told a Coaltrans conference last week that a lower grade 5 400 to 5 700kc/kg specification needed to be developed to reflect the growing quantities shipped to India.
Delegates attending the conference said it was not clear who was being asked to develop a new specification and/or index.
But South African producers, except for Total, were not convinced of the need for a separate index.
globalCOAL's RB1 and RB2 specifications have become generally accepted as the industry's benchmark specification - not a pricing marker - for generic South African coal.
globalCOAL's RB1 grade reflects the standard grade of South African export coal with a calorific value of 6 000kc/kg.
globalCoal's RB2 specification, which rarely trades on the spot market, is for a higher level of volatile materials.
Before the establishment of RB1 and RB2 as generic grades, South African coal was usually sold as "branded" coal - that is, it was identified with a particular company or mine.
The growing acceptance of generic RB1 and RB2 grades reflected the increasing commoditisation of physical coal, agreed producers, traders and utilities.
Coal that meets RB1 specification is easily tradeable in Europe.
India's construction boom has spurred a surge in demand for cement, for which coal is needed. Poor quality domestic coal and the lack of availability means it is likely to import about 35 million tons of coal this year - of which 10 million tons could be South African - from 3 million last year.
The current industry price benchmark for South African FOB coal is the API4 index, produced by UK coal publishing specialists The McCloskey Group and the UK's Petroleum Argus. globalCOAL produces a weekly index based on its bids, offers and trades.
Producers and traders said an agreed method to produce a differential to an existing index, ideally API4, would be preferable to avoid diluting existing indices.
A CIF India index would be more problematic because there were so many ports of different sizes and speeds of discharging vessels affecting delivered prices. If the market agreed on one benchmark Indian port, differentials could be the answer. - Reuters