The devaluation of the Indian rupee against the US dollar has significantly impacted Indian purchasing from the international market, according to IHS McCloskey, with buyers of thermal and metallurgical coals stepping back from the market as costs spiral.
The devaluation of the currency has added approximately 17%/t in rupee terms to the FOB cost of thermal coal from South Africa in August alone, during a time when the actual FOB price in US dollars of Richards Bay (RBCT) cargoes barely moved. As a result, coal prices in rupee-terms have been close to 2011 highs, according to Bank of American Merrill Lynch (BoAML).
Contracts are still being performed but fresh Indian buying has dried up. In August, RBCT physical trading slowed to a trickle, with just 475,000 t of spot business transacted during the month compared to 4.4 million t of spot coal trading in June.
However, Indonesian suppliers seem to be harder hit with reports that deals are being renegotiated or delayed following the exchange rate hit. In addition, there are very few reports of new business being transacted.
In the longer-term, however, BoAML expects India to overtake China as the largest importer of seaborne coal within the next two years as Indian coal production continues to underperform, while increases to Chinese domestic production and efforts by the government to reduce the country’s dependency on coal hits its demand for coal imports.
Adapted from press release by Jonathan Rowland