Coal demand has remained subdued amid weaker recovery in industrial activity worldwide, especially China, which has sent coal prices hurtling down from their historical peaks reached in March of last year to settling in a quiet pattern moving south. But invariably, they are still bobbing above US$100 per ton, which is a long way to go if prices have to match 2020 when prices had found their floor.
Daily recorded South African Richards Bay (API4) prices have dropped 77 percent since the peak in Mar-22. Major consumers—China and India—have been utilizing their own inventories built through production as well as imports while Europe has experienced a decline in coal demand amid piling up stock and consumers cutting down electricity consumption due to higher prices. Though Russian gas was lost to war, the more savory of the two fuels, Europe experienced an increase in renewable energy supplies outstripping fossil fuel generation for the first time contributing to about 40 percent of electricity generation, as reported by the Financial Times. Other reports have suggested that China too is strengthening its renewable energy where growth in solar capacity is growing much faster. The reduced demand in China as well as Europe has caused an oversupply in the international markets with major coal providers looking to set up market elsewhere.
Here at home, cement industry is a huge consumer of coal. When international prices soared, they found it prudent to turn to domestic and Afghani coal from next door which was much cheaper at the time. But soon enough, Afghan government slapped export duties and taxes on coal grasping onto the opportunity of selling enough coal to Pakistan as required. Cement manufacturers began mixing Afghan coal with domestic coal to optimize their margins. At the same time, cement prices began to move upward in the domestic market to manage the rising costs.
When coal prices internationally began to fall, cement manufacturers could quickly shift procurement to traditional suppliers in South Africa but import restrictions made it difficult—this kept Afghan coal prices elevated. The door to import is now slowly creaking open as import restrictions have been lifted and cement manufacturers can procure from abroad granted their LCs are opened. At the same time, Afghan government has slashed duties too to stop Pakistani buyers from dissipating. Cement manufacturers located in the north can keep utilizing Afghan coal as it makes more economic sense to do so, while southern players can import from abroad, mixing it with domestic coal wherever it is good for production and margins.