Coal news and updates

Richards Bay thermal coal swaps volumes down due to pricing concerns: Macquarie

A major reason why traded volumes of Richards Bay, South Africa, thermal coal swaps are down significantly this year is because the underlying price was not thought to be a reliable guide to broader market conditions, according to analysts at investment bank Macquarie's research arm Friday.

"The other major reason is more structural -- anecdotal evidence suggests that supply of 6,000 kcal South African material has simply been falling," the Macquarie analysts said in a research note.

According to data from the London Energy Brokers' Association, 115.9 million mt of Richards Bay 6,000 kcal/kg NAR swaps traded in the January-May period, down 28% from a year earlier.

Prices of spot physical Richards Bay 6,000 kcal/kg have raised eyebrows this year, given that trades have been conducted at premiums to delivered prices of markets such as India and Europe, which are the main recipients of South African thermal coal.

On May 12, a 60,000 mt May-loading parcel traded on globalCOAL at $71.50/mt FOB, approximately an $8/mt premium to equivalent swaps prices at the time.

In response to concerns raised by several market participants, online trading platform globalCOAL announced earlier this week it would restrict Richards Bay clip sizes on its screen to multiples of 25,000 mt only.

"In simple terms, any non-25kt cargo multiple on near-dates is, anecdotally, very difficult for a non-producer to get their hands on," said the Macquarie report, adding that "this acts to restrict liquidity and makes it easier for producers/traders to game the market."

Macquarie said it viewed globalCOAL's move as "a positive development" but that "only time will tell whether this rule change in the Richards Bay market will have the desired impact."

REFORM

The bank concluded that trading and pricing reform could not solve the challenges of three major producers -- Glencore, Anglo American and South32 -- controlling 70% of total Richards Bay shipments, the likely continued decline in total 6,000 kcal/kg supply and price indices needing broad-based market support and back up by significant volume to be truly reflective.

Macquarie analyst Stefan Ljubisavljevic told Platts these factors would remain features of the market and would influence pricing accordingly.

"But in terms of the trading platforms and index setting, this is just the start of a process and it needs to be part of a wider dialogue in the market on what else needs to be changed," he said.

GlobalCOAL said the 25,000 mt restriction will remain in place until the end of the year, when functioning of the market will be re-examined.

Price assessment agencies Argus and IHS McCloskey are said to be soliciting feedback on the API2 (CIF ARA) and API4 (FOB Richards Bay) indices on which thermal coal derivative contracts settle.

source: http://www.platts.com