Robust European demand pushes Richards Bay 5,500 kcal/kg NAR coal to premium

South African 5,500 kcal/kg NAR coal price has swung to premium for the first time ever against the prorated value in comparison to the 6,000 kcal/kg NAR as European demand for thermal coal creeps in amid disruption caused in importing Russian coal, sources told S&P Global Commodity Insights.

The coal grade is typically priced at a discount to the 6,000 kcal/NAR but the price shot up after tensions between Russia and Ukraine emerged late February.

The premium for the South African 5,500 kcal/kg NAR was heard around $10/mt to the 6,000 kcal/kg NAR price, according to sources. Discounts for the South African 5,500 kcal/kg NAR to the 6,000 kcal/kg NAR were heard at $7/mt on Jan. 11.

"The discount started edging toward premium when Europeans started buying the South African coal after the Russia issue emerged, but it has shot up after the invasion," an India-based trader said.

The price of South African 5,500 kcal/kg NAR price has surged over three times, from $107.45/mt FOB on Jan. 4 to $391.45/mt on March 2, according to S&P Global data.

"Even if the payments for energy are not sanctioned [in Russia], no one wants to risk getting caught in this. Who knows if coal is not delivered for whatever reason -- shipping problem, payment issues or some other logistical roadblocks," the trader said.

European buyers look for alternative

Sources said European buyers are trying to substitute Russian coal with South African, Colombian, North American and Australian coal but prices from these alternative origins have surged in the aftermath of the Russian invasion into Ukraine.

"Russia is looking to divert all cargoes east to Asia and south to Turkey," a Mediterranean-based trader said. "However, Turkey is in a difficult position as they share their maritime border with both Ukraine and Russia in the Black Sea. Ukraine has asked Turkey to close the routes for any Russia ships."

Turkey has currently not imposed any sanctions on Russia.

The Mediterranean-based source said that South Africa material was "out of the question" currently due to railing issues in the Richards Bay Coal Terminal with the country's state-owned transport utility Transnet. Besides, high prices not seen in years have discouraged buyers too.

"South Africa continues to struggle with rail services due to metal theft along the line despite stepped-up security, which in many cases is part of the problem," a US-based trader said.

"Railings are planned to measure 1.35 million mt per week and performance around 85%," a South Africa-based trader said. "However 85% performance is highly unlikely."

South Africa exported 5.3 million mt of coal in January, down 7% on the month but up 43% on the year, according to the most recent data publish by World Trade Statistics, with volumes to China falling to zero over the month due to the surging prices.

Russia exported 136.7 million mt thermal coal in January-August 2021, according to S&P Global Commodity Insights. The country exported 193.8 million mt in 2020, the data showed. Sources said approximately 40 million mt coal was exported to European Union in 2021.