Pakistan's coal crisis prompts industries to shut plants, reduce capacities

Several non-power sectors in Pakistan, including cement and steel plants, are either operating at significantly reduced capacities or shutting down plants on a temporary basis as imported coal prices remain elevated amid bleak domestic output, market sources told S&P Global Commodity Insights.

Besides, power plants have also been running at lower capacities due to short coal supply and higher prices across all other alternative markets.

Pakistan, which imports nearly 70% of its thermal coal from South Africa, has not been able to do so in the last few months as prices have remained out of bounds due to civil unrest in the country late last year and transportation issues. The situation was further aggravated this year as European demand poured in to replace Russian tonnages banned by the EU to protest Moscow's invasion of Ukraine.

"Cement and other non-power sectors are keeping their plants shut most of the days due to high South African coal price and lack of same quality alternatives," a Pakistan-based trader said, adding power plants are operating less than 60% of their capacity.

S&P Global reported April 21 that thermal coal buyers in Pakistan are looking for a substitute of the South African material in Afghanistan as prices of the fuel have remained elevated since early 2022 and an imminent power crisis has created a higher-than-usual domestic demand.

"The coal from Afghanistan is not of that good quality, it just fulfills the bare minimum need. Also, several regions are facing severe power shortage and more will likely follow," the trader added. "I think imports from South Africa can only start if the prices fall to at least $250/mt levels, till then there's no import happening."

Prices hurt import appetite

According to data from S&P Global, the price of South African 5,500 kcal/kg NAR coal rose from $107.45/mt FOB on Jan. 4 to $289.45/mt FOB May 20. CFR Pakistan thermal coal 5,750 kg/kcal NAR reached a historical high on March 2 at $457.95/mt, up $127.95 on the day. This is the highest the price has been assessed at since S&P Global started collecting data on June 1, 2020, when it stood at $61.50/mt.

Platts assessed the CFR Pakistan thermal coal 5,750 kg/kcal NAR on May 23 at $382.50/mt, down $5 on the day, S&P Global data showed.

Platts assessed the Richards Bay, South Africa to Port Qasim, Pakistan Supramax freight rate at $37.50/mt, up 70 cents on the day.

"The new government brought about a great deal of uncertainty, but as that new government settles in, they are beginning to encourage a return to the market to return electricity generation to normal," a US-based trader said. "They can't afford the South African high-CV coal but they will be buying the lower-CV higher ash products from South Africa, Indonesia, and the discounted Russian coal etc."

Another Pakistan-based source said demand for clinker and cement from Sri Lanka, which is a major market for Pakistan, has fallen due to the ongoing economic crisis in the country, that has also led to defaults.

"This in turn has generally reduced demand to some extent. Also, construction activities have slowed down," he added.

He pointed out that several Chinese power producers in Pakistan have not received their dues and are therefore operating at much lower capacities. "They have also threatened to shut their plants, and if that happens the crisis will become worse."