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Asia thermal coal: Gloomy China market conditions to last weeks

13 Mar 2018

Import demand for China may remain lackluster for a few more weeks until Asia-Pacific market participants meet in April for an international coal gathering in Beijing, market sources Friday said.
Seaborne market prices appear locked in a downward spiral driven by a list of bearish factors including falling Qinhuangdao domestic coal prices, that shed another Yuan 8/mt in Friday trade, as well as slowing consumption by coastal power plants as spring approaches, market sources said.
“Sellers are dropping their offer prices to attract buyers, but buyers are reluctant to bid as they see prices falling,” a north China trader said.
China’s 5,500 kcal/kg NAR domestic coal was heard to trade at Yuan 650/mt FOB Qinhuangdao, and the 5,000 kcal/kg NAR grade at Yuan 600-610/mt, market sources in China said.
At the start of this week, Newcastle 5,500 kcal/kg NAR spot prices for H2 March or April loading cargoes were trading in the low $80s/mt FOB, but on Friday the market level had declined to below $80/mt FOB Newcastle, one market source said.
An offer for a Capesize cargo of this grade for April or May delivery was heard at $80/mt FOB Newcastle, to a single bid at $74/mt, market sources said.
A trader saw fair market value for this grade at $78-$79/mt FOB Newcastle, but the source said he did not think prices could sink much below $78/mt, yet.
This is because, although stocks at power stations in China have increased to healthy levels over the Lunar New Year holidays, the rate of consumption remains strong, and has increased year-on-year, he said.
Purchase inquiries for this grade of high-ash Australian thermal coal were thinly dispersed in the spot market as of Friday, he said. Some spot demand was evident, however, from a number of Korean buyers.
Negotiations for benchmark prices for Japanese supply contracts over the 2018 financial year starting April have the potential to surprise, he said.
Australian thermal coal suppliers may be willing to compromise a little on price in order to bag a larger sales volume, he suggested.
The split between term contract and spot volumes for large Japanese customers has gradually changed from 80:20 in favor of term contracts, to reach a point where the division is more like 50:50, he said.
His personal expectation was the April benchmark for Japan could settle one or two dollars either side of $100/mt FOB Newcastle, basis 6,000 kcal/kg NAR.
Larger Japanese coal buyers were working hard to diversify their feedstock base away from a dependence on Australian thermal coal to a range of other origins.
In Friday trade, a 25,000 mt June-loading parcel of Newcastle 6,000 kcal/kg NAR thermal coal traded at $94.95/mt FOB on globalCOAL, down $4.50 from a trade Thursday at $99.45/mt for the same month of delivery.
“We are trying to hold on to offers,” an Indonesia-based producer source said.
Indonesian 3,800 kcal/kg NAR coal for early April loading traded at $48.25/mt FOB geared-vessel basis, and a utility in south China booked a 3,800 kcal/kg GAR April shipment at $38.50/mt, a trader in China said.
“Miners are still offering at a very high level which does not make sense in a falling market,” a source in Indonesia said.
He heard an offer for unbranded 5,000 kcal/kg GAR coal at $70/mt FOB, to buying interest at $67-$68/mt FOB.
S&P Global Platts assessed the Northeast Asia Thermal coal index Friday at $99.25/mt CFR Kinuura, Japan, basis 5,750 kcal/kg NAR, with typical ash content of 15% for delivery in the next 15-60 days.
Platts assessed the spot price of maximum 23% ash 5,500 kcal/kg NAR thermal coal at $76.50/mt FOB Newcastle, and the Newcastle 5,500 kcal/kg NAR price on a 20% ash basis at $78.50/mt FOB.
Platts used its ash differential for this Australian thermal coal, which has a current market value of 67 cents per 1% ash basis, to derive a price for 5,750 kcal/kg NAR coal with 15% ash at $85.70/mt FOB.
Panamax freight from Newcastle to Kinuura was indicated at $13.85/mt, which was added to the Newcastle 5,750 kcal/kg NAR 15% ash price.
The above rationale applies to the NEAT coal index assessment, with the associated code: JKTCA00.
Source: Platts