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South Korean buyer forges new buying strategy for Colombian thermal coal cargoes

A South Korean power utility and thermal coal buyer has developed a new procurement strategy for Colombian coal based on prevailing low FOB Colombia prices and weak freight, a market source familiar with the company's strategy said Tuesday.

The new strategy might facilitate more shipments of Colombian thermal coal to Asia-Pacific customers, including South Korea, the source said.

Korea East-West Power, or EWP, bought two Capesize cargoes of 130,000 mt each of Colombian coal with a minimum calorific value of 5,700 kcal/kg NAR coal at $41/mt FOB basis 6,080 kcal/kg NAR, and 410,000 mt of the same on a CFR basis at $52/mt, basis 6,080 kcal/kg NAR.

By averaging the prices paid for these Colombian cargoes on a CFR and FOB basis, EWP was able to save itself about $3.50/mt on its purchase price of six Capesize cargoes of Colombian thermal coal, amounting to 670,000 mt, the source said. This saving works out to about $2.34 million.

The source said that he believed the purchase strategy for Colombian thermal coal could have some staying power if the spread between FOB Colombia and Newcastle prices continues and freight rates remain low.

Essentially, EWP's strategy takes advantage of the spread between Colombian and Newcastle thermal coal FOB prices in the Atlantic and Asia-Pacific markets.

Platts assessed the 90-day price of Newcastle 6,300 kcal/kg GAR coal at $49.30/mt FOB, on Friday. Colombian 6,000 kcal/kg NAR coal on a 90-day basis was $42.50/mt, offering a spread of $6.80.

Core to the new strategy is EWP's access to its own dedicated ships through its long-term chartered vessel contracts, or CVC.

These long-term freight contracts allow EWP to allocate two CVC Capesize ships to carry the thermal coal from Colombia -- with a sailing time that is three times longer than from Newcastle.

source: http://www.platts.com