Let’s talk about NEAT: Looking dapper from its napper to its feet

Comedy actor Peter Sellers knew a thing or two about comic timing and delivery needed to make a good joke shine. After all he played Inspector Clouseau, Dr Stranglove, and Dr Fritz Fassbender among his many famous Hollywood characters. That’s why when Sellers sang the old Cockney London musical hall song Any Old Iron, he was able to deliver with aplomb the line, ‘You look neat. Talk about a treat! You look so dapper from your napper* to your feet.’

Neat now has a different meaning to Platts, but of course this would be unknown to Sellers and the Cockney musical hall songwriters of Any Old Iron.

NEAT refers to our recently launched North East Asia Thermal (NEAT) coal index. Since its inception in early January, the daily index has tracked the value of thermal coal cargoes arriving into the markets of Japan, Korea and Taiwan from exporters including Australia, Colombia, Indonesia, Russia and South Africa.

The index is normalized to the Japanese port of Kinuura, and has reflected changing trends in seaborne cargo freight for NorthEast Asia from Newcastle, Australia. It has also tracked ups and downs in demand for spot cargoes for the regional market, including a surge of import tenders issued by Japanese power companies in February.

Prices for delivered Japan cargoes remain robust, on firm seaborne cargo freight, as can be seen from the graph below. The NEAT index has broken through the $85/mt CFR Kinuura level and was assessed at $87.25/mt on March 10.

Inspector Clouseau may have asked: Why 5,750 kcal/kg NAR for the specification of the NEAT coal index? This specification was chosen as it is midway between the range of thermal coal considered for the index. That is, 5,500 kcal/kg NAR and 6,100 kcal/kg NAR, which are typical of the type of thermal coals that go into the Korean, Japanese and Taiwanese markets.

For the NEAT index, Platts decided to utilize its pricing expertise in the Newcastle 5,500 kcal/kg NAR market, for which it has published a price assessment for the past five years. This market is very active in terms of spot trading activity, making price discovery transparent, and is currently trading around $70/mt FOB.

There is also a freight component to the NEAT coal index to reflect the cost of shipping Australian cargoes from Newcastle port to Kinuura, Japan.

The freight rate has broken out of its $9 to $10 range to reach almost $11/mt, as Atlantic grain season demand for Panamax ships has pulled vessels out of the Pacific market, and higher rates are needed from North East Asian buyers to retain them.

Now just a word on the Japanese market generally: there is a radical shake-up going on there. Japanese buyers are consolidating their buying power in an attempt to achieve better pricing outcomes.

Key to this is the merger of European trader EDF’s coal and freight expertise with Japanese power companies Tokyo and Chubu. The new Tokyo and Chubu-formed JERA trading house has ambitions to trade 50 million mt of thermal coal per year around the world.

This is substantially more than Tokyo’s and Chubu’s current combined purchase volume of 20 million mt. Part of this huge increase in traded volumes will go to fuel new coal-fired power stations in Japan, with up to 40 new plants planned for the next decade.

In summary, the NEAT coal index is an accurate measure of the delivered cost of seaborne cargoes traded to Japan, Korea and Taiwan, and has closely tracked movements in vessel freight, spot trades and tender activity in these markets. NEAT may indeed be looking dapper as in the song Any Old Iron, as it is the newest price to join the Platts’ suite of thermal coal price assessments.

*Napper in Cockney London English means head