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Pakistan coal market pressured amid economic turmoil


Most industries running at lower capacity

Muted demand for domestic coal and cheaper alternatives

  • Author
  • Vaibhav Chakraborty
  • Editor
  • Richard Rubin
  • Commodity
  • Coal Metals

Pakistan's thermal coal market has been under pressure recently amid ongoing economic turmoil that has dented the appetite of buyers, despite imported prices being at over a $200/mt discount compared to the previous year, sources said.

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The country's overall power demand has been reduced since the majority of its cement and textile plants are not operating at full capacity, while the depreciation of the rupee against the dollar has also made procuring imports expensive at a time when the country's inflation is above 30%.

Amid rising prices and muted demand, many buyers in Pakistan have resorted to domestic stockpiles and cheaper coal available from Afghanistan since procuring coal from their preferred source, Richards Bay terminal in South Africa, has become difficult after the recent surge in South African coal prices, sources said.

In a bid to replace the high-calorific value coal from South Africa, buyers from Pakistan in the recent times have procured fresh supply from Tanzania, which is relatively cheaper but has higher sulfur content.

In August, a 100,000 mt cargo arrived at the Port of Qasim, Pakistan, from Tanzania, according to S&P Global Commodities at Sea data. The number of coal cargoes arriving at Qasim from South Africa has been dropping sharply year over year since 2021, CAS data shows.

Pakistan's import from South Africa has stumbled to 1 million mt so far in 2023, compared with 3.7 million mt in 2022 and 11.5 million mt in 2021, according to the CAS data.

Platts assessed the 30- to 60-day price of CFR Pakistan 5,750 kcal/kg NAR coal at $110.15/mt on Aug. 30, which was calculated based on FOB Richards Bay 5,500 kcal/kg NAR plus freight rate from Richards Bay to Qasim, falling almost $5/mt on week when it was assessed at $115.20/mt, and dropping 67% from $333.30/mt on Aug. 30, 2022. Platts is part of S&P Global.

"The reasons behind the continued decline in the coal price and the coal industry in South Africa is because it's undercapitalized, as the profits from last year were not reinvested," a US-based trader said. "There's been a major breakdown in transportation because the railroad has been stripped of most of its copper, its engines cannot get parts, and its truck transportation to the ports is all about corruption. The country's government has squandered the resources of the country and now its industries are severely underpowered. I believe the exports out of South Africa to Pakistan will continue to decline."

Platts assessed the FOB Richards Bay 5,500 kcal/kg NAR at $95.10/mt and the freight rate to move 50,000 mt of coal from the Richards Bay Coal Terminal to Qasim at $15.05/mt. CFR Pakistan 6,000 kcal/kg NAR coal of Tanzania origin for September delivery cost $110-$111/mt at the time of purchase in August, according to the sources.

Market participants suggested that since FOB Richards Bay prices remain elevated it is difficult for domestic industries in Pakistan to procure coal at such high prices amid a lack of economic activity.

However, they suggested if the CFR Pakistan 5,750 kcal/kg NAR coal prices were to ease below the $105/mt mark, then some buyers may be willing to stock up their inventories.

"I feel that once there is more clarity may see an uptick in demand as industries will resume operating at full capacity," the trader said.