The demand for coal has been weak due to a slower recovery in global industrial activity, particularly in China. As a result, coal prices have significantly dropped from their previous highs in March last year and have settled at a lower level. However, they still remain above $100 per ton, indicating a considerable gap from the prices observed in 2020.

The recorded daily prices of South African Richards Bay (API4) coal have experienced a 77% decline since reaching their peak in March 2022. Major consumers like China and India have been using their own coal inventories, both domestically produced and imported, while Europe has witnessed a decline in coal demand due to increasing stockpiles and consumers reducing electricity consumption in response to higher prices. Despite the loss of Russian gas supply due to war, Europe has seen a rise in renewable energy sources surpassing fossil fuel generation for the first time, contributing to approximately 40% of electricity generation, according to the Financial Times. Other reports indicate that China is also increasing its focus on renewable energy, with solar capacity growing at a faster pace. The decreased demand from China and Europe has resulted in an oversupply in the international coal markets, leading major coal suppliers to explore new markets.

Within the domestic market, the cement industry is a significant consumer of coal. When international coal prices surged, cement manufacturers opted to switch to cheaper domestic and Afghan coal. However, the Afghan government-imposed export duties and taxes on coal, taking advantage of the opportunity to sell coal to Pakistan. Cement producers started blending Afghan coal with domestic coal to optimize their profit margins. Concurrently, cement prices in the domestic market began to rise to manage the increasing costs.

As international coal prices started to decline, cement manufacturers faced challenges in shifting their procurement back to traditional suppliers in South Africa due to import restrictions. This resulted in the continued elevated prices of Afghan coal. However, import restrictions have now been lifted, allowing cement manufacturers to gradually resume imports by opening letters of credit (LCs). Simultaneously, the Afghan government has reduced duties to discourage Pakistani buyers from seeking alternative sources. Cement manufacturers located in the northern region can still utilize Afghan coal, as it remains economically viable, while those in the southern region can import coal from abroad and mix it with domestic coal based on production and margin considerations.