Coal news and updates

Japanese coal buyers expect $70/mt FOB Australia in annual supply contract talks

Japanese power utilities are expecting a settlement price of about $70/mt FOB Newcastle in talks with their larger Australian thermal coal suppliers for contracts with an April 1 delivery start date, basis 6,322 kcal/kg gross-as-received, said informed market sources Wednesday.

After some preliminary talks last week in Tokyo, representatives from the talks' lead Japanese negotiator Tohoku Electric Power are understood to be visiting thermal coal exporters in the Newcastle region of eastern Australia this week, said a number of sources.

"There is a growing expectation that the April contract price will be around $70/mt FOB Newcastle," said one market source.

This price would equate to about A$91/mt FOB Newcastle in Australian currency, and would be higher than the April 2014-March 2015 year Japan settlement price of $81.80/mt in Australian currency terms, which was A$88.34/mt FOB Newcastle

This is because the Australian dollar has depreciated against the US dollar over the past year.

The Australian dollar to US dollar exchange rate Wednesday was A$1.30 to $1, compared with A$1.08 to $1 on April 1 last year.

Some spot cargoes of Australian thermal coal with a calorific value of 6,000 kcal/kg on a net-as-received basis are understood to have been transacted in the Japanese market at prices in the low $70s/mt recently, he said.

On the trading platform globalCOAL, screen-traded cargoes of Newcastle 6,000 kcal/kg NAR thermal coal with a prompt delivery date increased in price slightly compared to earlier this week.

Some market participants watch the trading platform's traded prices for Newcastle 6,000 kcal/kg NAR thermal coal as a reference guide to prices in the wider spot market for this grade, though the two do not always match up.

SCREEN-TRADED NEWCASTLE PRICES

In Asia trade, an April parcel for 25,000 mt traded at $68/mt FOB Newcastle, up from $66.70/mt on Tuesday, and a June parcel of the same size went through Wednesday at $62.90/mt and higher than a trade for this month Tuesday at $61.30/mt, on globalCOAL.

Japanese coal buyers are trying to achieve a difficult balance between price and volume in talks for April-year contracts, said one market source.

Buyers in Japan are worried that if they take their offer prices too low in the talks, then some larger Australian coal suppliers could react by going through with their threatened production cuts.

"They have to get a competitive number in the price talks, and secure sufficient tons from Glencore," said one market source.

About 40 million mt of thermal coal is supplied from Australia to Japan under annual April supply contracts that run from April 1 to the end of the Japanese financial year in March the following year.

One of the most significant events to affect the Japanese thermal coal market in recent weeks is heavy rainfall in Kalimantan, Indonesia's coal producing province, which has reduced the availability on the seaborne market of higher-calorific thermal coal, said a market source.

Balancing this limited supply tightness for higher Indonesian-grade coal is the winding down of seasonal demand with the passing of the northern hemisphere winter, said market sources.

RUSSIAN CARGOES

Aggressively offered Russian thermal coal has been sighted in the Asian seaborne market including Japan of late and is competing with Australian coal.

This is partly because of low domestic coal demand in Russia's struggling economy, and also because of the depreciation of Russia's currency, the ruble, against the US dollar.

"Even though Russian Pacific ports are constrained for exports, sellers have been putting up competitive prices that are close to Australian prices in order to capture more market share," said a trader.

"The ruble is weak enough to make a profit on Russian coal sales with lower US dollar coal prices," he said.

Some Russian 5,500 kcal/kg NAR thermal coal was heard offered at Yuan 520/mt CFR Changjiang (Yangtze) river ports in eastern China, including 17% VAT, which converts to about the mid-$60s/mt FOB Russia Pacific ports.

This week, Taipei-based utility Taiwan Power booked seven Russian cargoes from coal producer SUEK at a price of between $76.70-$79.05/mt CFR basis 6,322 kcal/kg GAR.

This is equivalent to $71.35/mt CFR on a 5,500 kcal/kg NAR basis, or mid-$60s/mt FOB Russia Pacific ports, according to Platts calculations.

source: http://www.platts.com