Coal prices deter Indian traders

London - The rise in South African coal prices to $64.00-$68.00 a tonne FOB Richards Bay from around $50.00 a month ago has prompted Indian trader importers to slow their buying despite strong end-user demand, traders said.

India is an increasingly important market for South African coal. In 2009 the country is likely to account for 12 million tonnes of South Africa's 68 million thermal coal exports, importers and South African coal producers said.

Growing Indian demand for South African coal is expected to compensate for falling demand in Europe.

"Prices of a little over $50.00 a tonne for South African coal are ideal for the Indian market. The cement makers, the sponge iron sector, can all make a profit at this price. But above $60.00 or $65.00 then it is too expensive and nobody wants it," one major Indian coal trader said.

India is importing Indonesian and Australian coal but South African is a preferred quality by the sponge iron and cement sectors. Power generators buy whatever coal origin is the cheapest.

Much of the South African coal shipped to India is bought by traders who sell it on to a variety of end-users, often from stocks held at the ports. This so-called stock-and-sale business is vulnerable to price movements because end-users often try to re-negotiate contracts if prices fall, traders said.

"Because of the fluctuations in prices, people are backing out of deals. The smaller end-users in particular are using this as an excuse if they find themselves on the wrong side of prices," one major Indian coal importer said.

Indian trade importers said they were waiting for South African prices to stabilise before buying more prompt cargoes and hoped prices would settle at a lower level.

But they conceded they would have to make buying decisions within the next month if they needed coal to be delivered before the start of the monsoon season in June.

Indian coal imports usually drop to a minimal level between June and September due to the monsoon.

- Reuters