The price of futures contracts for Richards Bay coal, the primary coal imported into Pakistan, has fallen to its lowest level since May 2021. This price has dropped to $94.35 per ton, compared to $105 per ton in May 2021. The decline in coal prices is good news for cement manufacturers and electricity consumers, who use coal as a major input.
Richards Bay coal is coal from the city of Richards Bay in South Africa and is traded on exchanges as futures contracts. A futures contract is an agreement between two parties to buy or sell a specific commodity at a set price on a future date. This allows the buyer and seller to lock in a price for the commodity in advance, reducing the risk of price fluctuations.
Cement manufacturers and electricity consumers set to benefit from the lower coal prices, as they use coal as a major input for their production. Cement manufacturers use around 130 kg of coal per ton of cement produced, so a $10 per ton decline in coal prices has a pre-tax impact of around Rs 360 per ton, according to Yousuf Farooq, Director of Research at Chase Securities.
Electricity consumers also see lower tariffs, as coal-based power generation accounts for about 15-18% of the generation mix, and roughly 70% of the coal used for generation imported, according to Mustafa Mustansir, Director of Research and Business Development at Taurus Securities. He said that lower coal prices have a direct impact on fuel cost adjustments, which passed on to consumers.
However, the lower coal prices will not have a significant impact on the circular debt issue, which is mainly due to capacity payments, not fuel charges, according to Fahad Rauf, Head of Research at Ismail Iqbal Securities. Capacity payments fixed payments made to power producers regardless of their actual output.
The decline in coal prices is part of a downward trend that has observed since August 2020, when the price reached a high of $347.50 per ton. The decline attributed to various factors, such as lower demand due to the Covid-19 pandemic, increased supply from other sources, and environmental concerns.
The price of futures contracts for Richards Bay coal, the main coal imported into Pakistan, has dropped to its lowest level since May 2021. The lower coal prices are beneficial for cement manufacturers and electricity consumers, who use coal as a major input.
However, the lower coal prices will not have a significant impact on the circular debt issue, which is mainly due to capacity payments. The decline in coal prices is part of a downward trend that has observed since August 2020.