Indian sponge iron mills have started warming up to Mozambican thermal coal, as an alternative, and more so with the coal coming in at least 8–10 per cent cheaper than the now popular South African offerings.

The price of Mozambican being offered is around $207 per tonne – lower than its current market price (of $220 – 240 per tonne); and also cheaper than the South African variant, currently priced between $225 and 250 per tonne.

Nearly 1,00,000 tonnes of grade VT-1 coal from Mozambique and from Vulcan Energy’s mines are expected to come into India in the first week of August. The South African variant popular with the sponge iron mills is the RB 2 variant, which has an NAR of 5,500 kcal/kg.

Australian coal does not find much usage because of the kiln specification of Indian millers.

“The offer price made by the trading company that is bringing in the Mozambican coal is around $207 per tonne, which is quite a bit cheaper than the RB2 variants. So some mills have started showing some interest,” a sponge iron mill owner told BusinessLine.

Lower than market price

According to trade sources, the normal price of Mozambican coal is around $220–240 per tonne; but since the trading company has its own captive mines, the offerings are reportedly coming in cheap.

The trading company is expected to bring in the coal to one of the eastern India ports–Vizag, Paradeep or Gopalpur–from where it will be picked up by sponge iron mills.

As per a SteelMint report, the current price of South African coal (RB-2 of NAR 5500) ex-Vizag is around ₹18,000 per tonne; while that of VT-1 (Vulcan Thermal 1), ex-Vizag is ₹19,500 per tonne; Australian coal of 4600 NAR is ₹12,000 per tonne and Russian coal of 6000 NAR is ₹18,000 per tonne.

Supply constraints

Price volatility in South African coal–the RB 2 variant–has been high, with prices up by 12 per cent between July 1, when it was at $200 per tonne and now, up at around $225 per tonne. Demand from European nations have been high as they look to increase sourcing for their power sector requirement.

Indian mills have also been expressing concern over the lack of mine linkages by Coal India, whose offerings through linkages are priced “substantially lower” than imported coal. Linkage agreements for some of the mills are expiring around July–August period. And the Indian coal miner is yet to announce linkage auctions for sponge iron mills.

Trial use

In the recent past, one of India’s top steel-makers has experimented with VT 1 grade coal brought in from its captive mines in Mozambique. The results showed that average consumption is 700–800 kg/tonne of sponge iron, or to produce 1,000 kgs of sponge around 800 kg of the coal is required.

Against this, Indian coking coal, sourced from Coal India is 1500 kg/tonne (of sponge iron); while South African coking coal consumption is 700–800 kg/tonne.