India imports of S.Africa coal seen doubling in 07

NICE, France, May 15 (Reuters) Indian imports of South African coal are expected to double to at least six million tonnes this year from three million in 2006, Indian traders and South African suppliers said.

The traders said they expected shipments to continue to increase for at least the next few years, driven by demand from cement and sponge iron makers, who previously used Chinese coal.

Chinese suppliers halted exports to India in January because they achieved higher prices domestically.

Although nearly all of South Africa's exports of 65-70 million tonnes goes to the European market through long-term contracts, Indian demand is a crucial source of spot demand.

It has kept FOB Richards Bay prices supported at - a tonne.

The bulk of the imports to the European market are agreed through long-term supply contracts, which has left a limited number of spot cargoes available for the rest of this year.

Some of the impact of high Indian demand should be offset by reduced consumption by European utilities in the third and fourth quarters of this year as many of them are struggling to use up high stocks left over from an unusually mild winter.

Indian traders said they were beginning to talk to European utilities in the hope they might be willing to sell surplus coal on an annual basis, to India.

They said the South African producers and traders who had been traditional suppliers to the Indian market had been unwilling to sign long-term contracts for 500,000 to 1 million tonnes a year.

Some utilities are considering annual supply contracts with Indian traders, but they would insist on standard coal trading contracts and stringent credit terms. This could prove an insurmountable obstacle to trade with India, utility sources said.

''If they (Indian traders) are looking for term supply, they're far better off talking to us than producers, but credit agreements are likely to be a problem,'' one utility source said.

Indian traders said they were keen to achieve the supply security associated with long-term contracts and that they would honour them.

''We will always perform. We are looking at possible contracts with utilities as an ongoing concern, we don't want to just be buying spot cargoes, we need security of supply,'' one major Indian trader said.

REUTERS DKS RS1651