Australia's thermal coal prices are expected to remain elevated in the near term as it finds new buyers in Europe amid the Russia-Ukraine conflict, while interest from Japan and South Korea continue to soar, market sources told S&P Global Commodity Insights March 10.
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The Newcastle 5,500 kcal/kg NAR coal with 23% ash hit a fresh record high $295/mt FOB March 9, the highest since the grade was first assessed in August 2017, data by S&P Global showed. Traders expect prices to rise even further given that offers for 6,000 kcal/kg NAR was indicatively valued at $427/mt FOB.
Asian supply was already tight to begin with given backlogs from earlier this year when additional demand poured in following Indonesia's coal exports ban and heavy rainfall in Australia impacting the supply chain. With Russian coal out of the picture, buyers across Europe have been looking for alternatives even as far as Indonesia and Australia, despite the longer shipping route.
"There has to be some reason for prices to soften. From here, I only see a bullish price run because demand is coming from all the quarters and supply is tight," an Indonesia-based trader said.
After China banned Australian coal in late 2020, Australian exporters have been able to find new homes for their thermal coal in India and Pakistan, while increasing their market share in South Korea, Japan and Taiwan, sources said.
"As global buyers look to replace Russian origin tons, with Atlantic spot supply tightness, global prices have reacted to the coal price surge in delivered European coal prices and escalation of all FOB supply prices in both basins as well as increases in LNG pricing," according to a March 6 research report by S&P Global. "Forward prices for prompt month also escalated to over $400/mt, with Q2 2022 forwards trading just below that at $395/mt for the higher-CV 6,000 kcal/kg quality."
According to the report, Australia exported 182.7 million mt between January 2021 and November 2021, while Russia exported about 150.1 million mt.
Market sources said Australian cargoes, that were initially meant for India, were being redirected to Europe as Indian buyers were unwilling to pay the prevailing high prices. Meanwhile, demand for Australian coal has increased from Japan and South Korea in the aftermath of the Ukraine invasion.
Japan and South Korea imported a total 112.5 million mt and 88.3 million mt coal, respectively, in 2021, data by S&P Global showed. South Korea imported a little over 39 million mt from Australia and 14 million mt from Russia, while Japan imported about 90 million mt from Australia and only 14 million mt from Russia.
The data also showed that top 15 countries of the European Union imported around 85 million mt, of which market sources estimate about 40 million mt was from Russia. Sources have highlighted how European buyers are trying to substitute Australian coal by purchasing coal from the US, South Africa, Indonesia and Columbia.
Meanwhile, Australian coal demand from Japan, South Korea and Taiwan are firm and traders expect prices to remain elevated until negotiations with Japanese buyers for long-term contract concludes.