The average monthly European physical coal price premium to South Africa is set to hit a record high in July, as buyers in the continent have scrambled to lock in volumes ahead of a planned embargo on Russian coal.
Between 1-27 July, the cif Amsterdam-Rotterdam-Antwerp (ARA) NAR 6,000 kcal/kg coal price premium to the fob Richards Bay NAR 6,000 kcal/kg product has averaged $59.14/t. This is the highest average premium held by the European product in any month since Argus started assessing the two prices in 2001.
This marks a stark turnaround from recent years when the South African price has typically commanded a premium to its European peer. Between 2018 to 2021, the South African price closed on average $8.71/t higher than the European equivalent, while the European price was last assessed higher on average over the course of a year in 2017.
In 2022-to-date, meanwhile, the European price has averaged a premium of $13.20/t to the South African contract, representing the highest European premium for the first seven months of a year since 2008.
The European price has been supported this year by a sharp rise in demand. January-July seaborne thermal coal imports in the region are set to hit a four-year high, as the region prepares to ramp up power generation from the solid fuel.
And the high European premium this year has more been a function of the extremely high outright European price than weakness on the South African price, with both prices having comfortably averaged a record high in 2022 so far.
South Africa has been among the countries of origin from which exports to Europe have rallied recently, having risen more than four-fold on the year in May.
But while South African exports to Europe have risen, deliveries to key markets India and Pakistan have fallen sharply in recent months, with the South Asian countries having turned their attention to competitively priced Russian product.
The loss in demand from these markets has applied some pressure to the South African price relative to the European value, but when compared to historical norms, both markets remain exceptionally inflated.
