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Rebound in Newcastle coal screen prices surprises Japanese market

A sudden rebound in Australian thermal coal prices for 6,000 kcal/kg NAR specification fuel following higher level trades on globalCOAL Monday and Tuesday has perplexed some market participants who say the market's bearish fundamentals have not changed.

"There is no change in either the supply or demand situation," said one Newcastle market participant with connections to the Japanese import market for Australian thermal coal.

A flurry of physical trades mostly for Q3 and Q4-loading 25,000 mt parcels of Newcastle 6,000 kcal/kg NAR coal that added up to 225,000 mt went through coal trading platform globalCOAL in Monday's European trading window.

Prices for these parcels ranged from $77.40/mt FOB for September to $78.75/mt for December.

In late Asian trade Tuesday, 75,000 mt of the same specification coal for Q4 delivery traded at $78.75/mt FOB Newcastle, and a 25,000 mt parcel went through at the same price for November delivery on globalCOAL.

"This trend [in pricing] may continue up to $80/mt FOB. That is my expectation," said the market participant.

At the end of European trading Monday, the Newcastle derivatives coal market settled at $76/mt FOB for Q3 and $77.15/mt for Q4, meaning the day's physical trades were done at a $1 premium to paper market prices.

The timing of Monday's screen trades coincided with the beginning of negotiations in Japan for fiscal-year (April-March) thermal coal supply contracts, traders noted.

"The only thing happening is the Japanese benchmark negotiations are starting," said the market participant.

Tohoku Electric, the lead negotiator for Japan's utility coal buyers is currently engaged in talks with Glencore-Xstrata to work out a price for Australian 6,322 kcal/kg GAR thermal coal delivered into term contracts for the 2014-15 fiscal year.

This year's talks are expected to be tough, given that spot prices are trading significantly below April 2013's contract price of $95/mt FOB Newcastle, basis 6,322 kcal/kg GAR (roughly 6,000 kcal/kg NAR).

Market expectations are that a price of $82-83/mt FOB Newcastle will emerge from this year's price negotiations in Japan.

"That is still a tough level, and many Australian miners will be in trouble. Few can survive at current prices of $77/mt FOB," stated the market participant.

Japanese power utilities were well covered in terms of supply for Australian thermal coal right up to the end of June, he said.

"For the Q2, April to June period, most of the power companies have no room for cargoes," said the Newcastle market participant.

Another Newcastle market participant said Newcastle physical thermal coal prices may have traded higher Monday because the Australian dollar had firmed against the US dollar late last week.

"There is a correlation between exchange rates and FOB prices," the second participant added.

Source: Platts