India, Mongolia in talks for preliminary mining pact
The pact will focus on transit of minerals such as coal and copper, Reuters sources say.
(The opinions expressed here are those of the author, Clyde Russell, a columnist for Reuters.)
Heavy rains and the worst floods in 50 years have shut the world’s largest coal-export harbour, but the impact from the closure of Australia’s Newcastle port is likely to hit hardest in India.
Rainfall of more than 1 metre (3.3 feet) in places in the past few days, and the threat of more to come, led to the shutdown of railways from coal mines in the Hunter Valley, north of Sydney, and the coal loaders at Newcastle Port, which shipped some 158 million tonnes of the fuel last year.
The bulk of the coal shipped from Newcastle is high-grade thermal coal used in power plants, along with smaller volumes of some grades of coal used to make steel.
Indonesian coal is substantially cheaper, but Indian buyers will have to compete with their Chinese counterparts for supplies
While the bulk of Newcastle’s exports go to long-term customers in Asia, such as Japan and South Korea, in recent months increasing volumes of thermal coal have been shipped to India.
This would have previously been considered an unusual trade, as Indian buyers preferred cheaper, and less energy intensive, grades from Indonesia, which is closer to the South Asian nation, the second-largest coal importer behind China.
But China’s ongoing dispute with Australia over a range of issues has led Beijing to place an unofficial ban on coal imports from the world’s largest exporter of coking coal and number two in thermal coal.
As a result, coal flows across Asia are being forced to realign, with India buying increasing volumes of Australian thermal coal and China sucking up Indonesian cargoes that would have previously headed to India.
India’s imports from Australia have been above 5 million tonnes a month since October, having never previously exceeded that level since Refinitiv started monitoring coal flows in January 2015.
For March, India’s imports from Australia are estimated by Refinitiv at 6.7 million tonnes, up from February’s 6.13 million and in line with January’s 6.8 million.
The volume of imports from Newcastle Port has also been rising in recent months, with Refinitiv data showing 1.93 million tonnes being discharged in February, up from 1.72 million in January and 1.29 million in December.
While Newcastle shipments will likely resume in a couple of weeks, the loss over even that relatively short period will boost prices and tighten the supply of coal in Asian seaborne markets.
While this will hit other importers from Newcastle such as Japan and South Korea, these north Asian countries are entering their seasonal slack demand period between the winter and summer peaks.
However, Indian imports tend to ramp up in the first half of the year as stockpiles are built ahead of the monsoon rains, meaning prices are surging and volumes dropping just as India would want the opposite to be happening.
Newcastle thermal coal futures ended at $94 a tonne on Monday, up from the previous close of $92.75 and the highest price in two years.
The price has rallied 94% since last year’s pandemic-led low of $48.50 a tonne, first as a cold winter across north Asia prompted higher demand, with the current flooding in Australia putting on an additional premium.
Indian buyers currently have few good alternatives to supplies from Australia, with South African coal, which is similar in quality, trading at higher prices than even the flood premium for Newcastle coal.
Coal at South Africa’s main port of Richards Bay, as assessed by commodity price reporting agency Argus, rose to a three-month high of $100.39 a tonne on Monday, up from the previous close of $98.25.
Indonesian coal is substantially cheaper, but Indian buyers will have to compete with their Chinese counterparts for supplies, meaning there may be limited cargoes available at short notice.
India could look further afield for thermal coal, with cargoes from the United States, Colombia and Russia all within the realms of possibility. But none of these are quick solutions and may not end up being that much cheaper once additional freight and insurance costs are added in, not to mention the potential difficulties of using different types of coal with varying properties in power plant boilers.
For the moment, India is facing a higher coal import bill and limited supplies, something sure to raise concerns in the government, which is already fretting about the impact of higher crude oil prices on the economy.
(Editing by Richard Pullin)
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